UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year ended December 31, 2002.

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from ___________________ to __________________

                         Commission File Number 0-26284

                            Milestone Scientific Inc.
                 (Name of Small Business Issuer in its Charter)

                 Delaware                                13-3545623
      (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                  Identification No.)

    220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039
               (Address of Principal Executive Office) (Zip Code)

                  Registrant's telephone number (973) 535-2717

      Securities registered under Section 12(b) of the Exchange Act:

                                                          Name of Each Exchange
               Title of Each Class                         on Which Registered
               -------------------                         -------------------
  Common Stock, par value $.001 per share                American Stock Exchange
                                                         Pacific Stock Exchange

         Securities registered under Section 12(g) of the Exchange Act:
                                      None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|  No |_|

Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

For the year ended December 31, 2002, the revenues of the registrant were
$4,074,006.

The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the American
Stock Exchange on April 11, 2003 of $.26 was approximately $2,533,461.

As of April 11, 2003 the registrant has a total of 12,633,370 shares of Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


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<PAGE>

                           MILESTONE SCIENTIFIC, INC.

                            Form 10-KSB Annual Report

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                               <C>
PART I
   Item 1.    Description of Business.........................................................     3
   Item 2.    Description of Properties.......................................................    15
   Item 3.    Legal Proceedings...............................................................    15
   Item 4.    Submission of Matters to a Vote of Security Holders.............................    15

PART II
   Item 5.    Market for Common Equity and Related Stockholder Matters........................    16
   Item 6.    Management's Discussion and Analysis or Plan of Operations......................    19
   Item 7.    Consolidated Financial Statements...............................................    26
   Item 8.    Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure....................................................    26

PART III
   Item 9.    Directors and Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act...........................    27
   Item 10.   Executive Compensation..........................................................    28
   Item 11.   Security Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters.........................................................    30
   Item 12.   Certain Relationships and Related Transactions..................................    32
   Item 13.   Exhibits, List and Reports on Form 8-K..........................................    33
   Item 14.   Control and Procedures                                                              35
SIGNATURES                                                                                        36
CERTIFICATIONS                                                                                    37
EXHIBITS                                                                                          39
</TABLE>

FORWARD-LOOKING STATEMENTS

      Certain statements made in this Annual Report on Form 10-KSB are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, particularly in view of the Company's early stage operations, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.


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<PAGE>

                                     PART I

Item 1. Description of Business

      All references in this report to the Company refer to Milestone Scientific
Inc., its wholly owned subsidiary, Sagacity I, Inc., doing business in the
United States as Milestone Scientific, and its 88.65% owned subsidiary,
Spintech, Inc. ("Spintech"), unless the context otherwise indicates. Unless
stated to the contrary, all references in this Annual Report on Form10-KSB to
"we," "us," "our" or "the Company" refer to Milestone Scientific Inc. and its
subsidiaries.

General

      Milestone develops, manufactures, markets and sells a proprietary,
computer-controlled system to healthcare providers that delivers a safe,
accurate and painless injection of local anesthetic. Its core focus is on
Advanced Subcutaneous Injection Technologies - a field which it has pioneered -
that targets penetration of the traditional hypodermic syringe market and
focuses on developing products to improve the safe, comfortable and efficient
delivery of local anesthetics.

      The system is marketed in dentistry under the trademarks CompuDent(TM) and
Wand Plus(R) and in medicine under the trademark CompuMed(TM). CompuDent(TM) is
suitable for all dental procedures that require local anesthetic. CompuMed(TM)
is suitable for many medical procedures regularly performed in Plastic Surgery,
Hair Restoration Surgery, Colorectal Surgery, Podiatry, Dermatology, Orthopedics
and a number of other disciplines. The Wand(R) systems are sold in the United
States and in over 25 countries abroad.

      Milestone's products, CompuDent(TM) in the dental market, CompuMed(TM) in
the medical market and the disposable component, The Wand(R) handpiece, were
developed to penetrate the existing 150 year old syringe marketplace. This
market has changed little since the introduction of the syringe, while the rest
of medical science and technology have grown by leaps and bounds. CompuDent(TM)
and CompuMed(TM) are computer-controlled infusion devices that provide a highly
regulated rate of emission of anesthetics and other medications. This controlled
infusion allows for a drop of anesthetic to always precede the needle tip during
insertion thus ensuring that the needle traverses already anesthetized tissue.
The controlled flow also eliminates the "bee sting" effect, which is descriptive
of the pain associated with a surge of fluids into tissue.

      In the past year, Milestone received broad United States Patent protection
on a safety engineered sharps device, which targets an emerging and fast growing
market for safety needles and syringes estimated at over $450 million annually
by the end of this year, almost half of which constitutes Milestone's unique
product niche. This new device, pending FDA marketing clearance which will be
marketed under the trade name SafetyWand, and is a result of Federal legislation
mandating the use of a safety engineered sharps device to eliminate inadvertent
needle sticks, which cost the taxpayers in excess of $2 billion annually for
diagnostic testing and health care.

      Milestone has also developed a new technology that, when commercialized,
will provide Milestone with a strong entry into new markets, specifically the
large and profitable hospital sector. CompuFlo(TM) is a computer-controlled,
pressure sensitive infusion, perfusion, suffusion and aspiration device, that
employs touch-screen technology to provide a real time readout of pressures,
fluid densities and flow rates in the delivery and removal of a wide array of
fluids. Utilizing bar code technology, CompuFlo(TM) will interface with the
hospital's computer system and automatically cross-reference the prescription,
medication, dosage (when bar coded), drug interactions and allergies found in
the patient's electronic hospital records. This will disallow an injection that
is unauthorized or contraindicated and will provide a record of the time,
medication, dosage, and the name of the staff member who administered the
injection. These capabilities are of value in the entire drug delivery process.
Milestone has obtained four U.S. patents in connection with the CompuFlo(TM)
technology.

      All three systems, the Compudent(TM), Compumed(TM) and Compuflo(TM),
utilize a common disposable component, The Wand(R) handpiece, which through its
unique, patented ergonomic design, allows the practitioner enhanced tactile
control during the injection. Once brought to market, the three systems will
have the option of using the SafetyWand(TM) disposable handpiece as well. The
systems offer the practitioner a greater selection of the types of injection
administered, more freedom of movement, increased patient comfort, reduced
anxiety (for both the patient and practitioner), improved efficacy, greater
infection control and safety, and reduced potential liability. Recent studies
also indicate that the systems


                                       3
<PAGE>

will reduce the amount of anesthetic required. The products have gained
recognition and praise in clinical and other intellectual studies.

      Milestone introduced its dental system at the Fall 1997 American Dental
Association Trade Show, and began selling equipment units and an initial supply
of disposables in January 1998. Originally, the dental unit was sold in the U.S.
and Canada through major distributors of dental products. In October 1999,
Milestone began selling the product directly to dentists in the U.S. Currently,
the product is sold in the U.S. through company-trained independent sales
representatives and dealers, in Canada through one major distributor and
internationally through dental product distributors. Milestone also markets and
sells Luer Lock needles for use with The Wand(R) handpiece.

      Milestone was organized in August 1989 under the laws of Delaware. On
November 3, 1995, Milestone acquired 65% of the outstanding shares of common
stock of Spintech for an aggregate purchase price of $2,700,000. During 2000 and
2001, Milestone increased its interest in Spintech to 85.65% and 88.65% by
exercising the fourth and the final annual options to acquire an additional 3%
of Spintech's shares for a nominal amount granted in the original acquisition
transaction, by receiving shares from two former employees as part of a
settlement agreement and acquiring additional shares from Spintech stockholders.
Spintech developed and owns the technology underlying CompuDent(TM),
CompuMed(TM) and The Wand(R), and has registered patents and trademarks related
to these products.

      Milestone maintains its executive offices at 220 South Orange Avenue,
Livingston Corporate Park, Livingston, New Jersey 07039, and its telephone
number is (973) 535-2717.

Products

      CompuDent(TM) and CompuMed(TM), Milestone's Computer Controlled Anesthetic
Injection Systems are computer controlled local anesthetic delivery systems
developed by Milestone. Milestone believes that it has overcome the typical
problems associated with conventional anesthetic injections. The slim,
pencil-like shape of The Wand(R), the disposable handpiece, is more functional
to the user and less ominous in appearance to the patient. The pencil grip
provides a greater level of stability for the user by preventing antagonistic
movements between the patient and the practitioner during needle placement, a
positioning control not possible with syringes currently in use. A computer
driven infusion machine operated by a standard air controlled foot pedal
provides the precision flow necessary for virtually painless local anesthesia.
These systems provide a highly controlled rate of emission of anesthetic
solution in advance of the needle point. The controlled rate of anesthetic
emission causes an anesthetic pathway, which anesthetizes the tissue immediately
ahead of the needle's penetration. The controlled rate substantially eliminates
the so-called "bee sting" effect, which is pain associated with the sudden
build-up of pressure by the too rapid flow rate of expelled fluids. Because this
system employs The Wand(R), a single use disposable handpiece, Milestone
believes that it will offer protection against patient cross-contamination.

      In many procedures, CompuDent(TM) rapidly anesthetizes tissue by
eliminating the need for preliminary pain blocking injections and reducing the
waiting time required to see if the injection has taken effect before further
anesthetic injections. Milestone believes that the CompuDent(TM) technology
enables a dentist to provide painless injections, increases productivity, is
safer than traditional methods of injections and provides important competitive
advantages for dentists trying to build and maintain their practices.

      While many dentists often give comfortable injections, it is extremely
difficult for them to do so consistently using conventional techniques. Dentists
do not have a strong purchase point against which they may guide their hand when
inserting a needle or while administering the injection. The resulting
uncontrolled movement of the needle frequently can be painful to the patient.
Although the dentist is trained to inject slowly, present devices do not allow
automatic control of the rate of flow. Thus, the needle often enters tissue that
has not yet been anesthetized. CompuDent(TM) can precisely control the flow rate
and modulate fluid pressure by the use of a microprocessor and an electronically
controlled motor.

      A pre-production prototype of the system had been clinically tested in
over 1,000 patients. Of those tested, 96% reported a "virtually painless" or
significantly less painful procedure than the traditional syringe injection. At
that time, three additional clinical studies were conducted on various
performance aspects of the system and were published in major dental
publications. To date, over 40 articles have been published about the system in
the dental literature. Within the past year in the dental market, a favorable
evaluation on the use of the CompuDent(TM) was published in the Dental Advisor.
Additionally, a study was published describing the benefits of using the new
bi-directional rotation insertion technique. CompuDent(TM) has now been used to
administer more than 11,000,000 injections.


                                       4
<PAGE>

      While initially designed for use in dentistry, the technology has uses in
a variety of medical disciplines including podiatry, dermatology, hair
restoration surgery, colorectal surgery, orthopedic and plastic surgery. The
technology, utilized in a device designed for use in medicine, named
CompuMed(TM), was first introduced to the medical community during the third
quarter of 2001. Over the last two years, a study published in colorectal
surgery, one of the disciplines targeted for the CompuMed(TM) system, confirmed
that patients experienced significantly less pain when the CompuMed(TM) system
was used. The study was terminated before accruing its initial target number of
patients because the researchers considered it unethical not to use CompuMed(TM)
exclusively. Another clinical study was presented as an abstract in the field of
podiatry, where the study compared the use of the CompuMed(TM) and traditional
hypodermic syringe for obtaining regional anesthetics in the hallux. The results
stated that the pain associated with using the CompuMed(TM) was decreased from
moderate to nearly non-existent. There are several ongoing clinical studies in
other medical disciplines.

      Milestone plans on introducing, during 2003, the Wand(R) handpiece with
Needle. This product is essentially the current Wand(R) handpiece with a needle
permanently attached. The benefits of this product are two fold; For the
practitioner there is less preparation time needed, and for the business it
should increase handpiece sales as customers will now stock multiple boxes with
different sized needles. In addition, in some international countries it is
believed that practitioners may be reusing the handpieces on multiple customers,
the bonded handpiece will reduce these occurrences, thereby increasing
Milestone's sales.

      Until November 2001 Milestone had sold SplatrFree(TM) prophy angles. In
November 2001, Milestone sold certain tangible and intangible assets, rights and
properties (which were fully amortized) relating to the SplatrFree product to
Smart Health, Inc. for $55,000 payable at closing and a 12 month consulting
agreement for $96,000 in aggregate.

Manufacturing and Sources of Supply

      CompuDent(TM) and CompuMed(TM) equipment units are manufactured for
Milestone by Tricor Systems, Inc. ("Tricor") pursuant to specific purchase
orders. In order to fund certain expenses of Tricor, Milestone has advanced
funds to Tricor. These advances are reduced as Tricor makes shipments to
Milestone. Net advances to Tricor as of December 31, 2001 and 2002 were $689,529
and $397,935, respectively.

      The Wand(R) disposable handpiece is manufactured for Milestone by Nypro
Inc. ("Nypro") pursuant to scheduled production requirements. Nypro utilizes
molds, semi-automated assembly equipment and packaging equipment purchased by
Milestone.

      Milestone sells Becton Dickinson ("BD") Luer Lock needles directly to
Milestone dental customers. BD remains Milestone's major needle supplier.

Marketing - Dentistry

      CompuDent(TM) was originally marketed to dental practitioners utilizing a
group of major dental distributors in the U.S. and Canada. In October 1999,
Milestone severed the U.S. distribution channel and began selling and marketing
its product directly to dentists throughout the U.S. The dealer distribution
channel in Canada was not affected until March 2000, when Milestone signed a
distribution agreement with order minimums with Synca, a Canadian corporation.
During the second quarter of 2001, Milestone transitioned to independent sales
representatives supported through Milestone's customer service department and an
in house sales department. As of December 31, 2002, Milestone employed 2 full
time in house sales people and utilized 6 independent sales representatives.
Milestone has experienced difficulty in achieving significant market
penetration. Recent changes to the marketing approach and introduction of new
sales programs have been instituted in order to improve results.

      During 2001, Milestone embarked on a re-positioning strategy. In October
2001, Milestone re-launched The Wand(R) Plus as CompuDent(TM) at the American
Dental Association Exhibition (ADA) in Kansas City. The re-launch, complete with
a new image, was part of an overall positioning effort to leverage the brand
equity in The Wand(R) handpiece while providing separately identified products
for the various market segments. The new positioning strategy is designed to
enhance product perceptions.

      To complete this repositioning strategy, Milestone is leveraging the
findings of two clinical studies, both of which focused on a new needle
insertion technique called Bi-directional Rotation Insertion. This new technique
made possible


                                       5
<PAGE>

by the revolutionary design of The Wand(R) handpiece, minimized needle
deflection, which is the path taken by a needle through tissue. The result
produced greater accuracy in an in vitro model versus the traditional syringe
technique. This is clinically significant, as contemporary dental anesthesia
textbooks indicate needle deflection as a source of anesthetic failures. The
second study concluded that this same technique requires two to three times less
force to penetrate tissue, which may lead to a more comfortable injection
experience of the patient. This new positioning strategy leverages the
historical findings of Milestone to chart a pathway for the future.

      The industry, in general, is moving towards reducing the number of trade
shows and the size of the exhibition stand as well as the number of people
representing the manufacturers. Going forward, Milestone will reduce the number
of trade shows that it attends in the dental market. Milestone will also reduce
the exhibit space to a standard 10' x 10' display for all exhibitions. The
logistical management of these shows will be outsourced to a professional
organization specializing in medical and dental trade shows. Milestone plans on
utilizing a targeted direct mail approach in support of the trade shows.

      Milestone has utilized several types of distribution strategies in the
U.S. The most recent strategy employed was the development of a network of
independent sales representatives. This strategy has been met with limited
success. In addition to difficulty in gaining access to the dentists, this type
of distribution strategy is difficult in that a representative must rely on a
single product line for success. Milestone believes that the concept of
independent sales representation is the correct strategy, however, the overall
plan must be modified to meet Milestone's strategic objectives. To that end,
Milestone continues to recruit, solely on a commission base, independent sales
representatives that have established product lines in well defined geographic
territories. Milestone believes that with smaller territories and complementary
products, this new strategy will increase the sales of units, thereby increasing
the installed base and the annuity stream of handpiece revenues. In addition,
Milestone plans on collaborating with regional dealers to support the sales
effort. The management of this network will be accomplished internally, further
reducing the financial risk.

      To support this strategy, Milestone has developed internal sales and
telemarketing capabilities. The internal sales team has proved successful in
targeting the installed base in open sales territories to both increase
handpiece utilization as well as increase the installed base of CompuDent(TM)
units by targeting existing customers for additional units. Milestone also
offers telemarketing services to the external sales network, which is used
primarily to set appointments.

      Internationally, Milestone has developed a network of distributors.
Currently, Milestone Medical Technologies (MMT), an independent company, manages
the sales of the products in Europe, South Africa, the Middle East and Mexico.
China, Taiwan, South Korea and Malaysia are managed through United Systems and
Brazil is managed through the Strider Corporation. Sales in all other
territories are managed directly by Milestone.

      This network of distributors is experiencing some of the same issues that
faced the U.S market, most notably the training element. Steps are being taken
to provide a standardized sale, marketing and training approach for the global
distribution market. A unique issue uncovered in the international market is the
re-use of handpieces. To mitigate this potential infection control issue,
Milestone will introduce a bonded handpiece, which marries the handpiece and
needle together in a single, sterile package. Milestone believes that these new
approaches will provide the impetus for increased unit sales and handpiece
utilization.

Dental and Hygiene School Program

      Milestone is committed to support the education and training of future
dentists and dental professionals. Accordingly, it offers special educational
assistance programs to qualified dental and hygiene schools throughout the U.S.
and Canada. These programs include providing demo units, a year's supply of
handpieces per unit, and free instruction and guidance to participating
educators. Currently, Wand(R) systems have been added to the curriculum of 28
U.S. and Canadian dental schools and 17 schools providing degrees in dental
hygiene. Through our international distribution partners, the Wand(R) systems
have also become part of the curriculum in several international dental
programs.

Marketing - Medical

      CompuMed(TM), released into the physician-based market in the third
quarter of 2001 for further market trials, will further expand the Milestone's
opportunities. CompuMed(TM) addresses the needs of several medical disciplines,
including Podiatry, Plastic Surgery, Dermatology, Hair Restoration Surgery,
Colorectal Surgery and Ambulatory Surgery. Milestone


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<PAGE>

will initially focus on five specialties, Podiatry, Colorectal Surgery, Hair
Restoration, Dermatology and the Ambulatory Surgery market.

      Milestone chooses its target markets based on exhaustive analysis by focus
type groups, consultation with industry experts and a pragmatic assessment of
the opportunity. Milestone's products are designed to provide the same function
as the traditional syringe with the enhancement of greater efficacy, less
patient discomfort and reduction in liability. That simple analysis dictates
that the product should be directed toward the industry and practices that would
be most helped. In order to effectively penetrate the markets chosen, Milestone
has begun to augment its current marketing and sales effort with contracted
expertise from these fields.

      With the pressures on the hospital market to reform, market penetration
for the CompuFlo(TM) technology should be easier. Hospitals and drug companies
are already developing systems to control the error rate in administration of
medication. Recent articles in the New York Times and Wall Street Journal have
brought new light to this important issue. CompuFlo(TM) will seamlessly
integrate with the hospitals' bar code systems to provide a previously
unattainable level of patient security and safety.

Competition

      Milestone faces intense competition from companies in the medical and
dental device industry, including well-established academic institutions,
possessing substantially greater financial, marketing, personnel, and other
resources. Most of Milestone's competitors have established reputations,
stemming from their success in the development, sale, and service of medical
products. Further, rapid technological change and extensive research and
development characterize the industry. Current or new competitors could, at any
time, introduce new or enhanced products with features that render Milestone's
products less marketable, or even obsolete. Therefore, Milestone must devote
substantial efforts and financial resources to improve its existing products,
bring its developmental products to market, and develop new products for its
related markets. In order to compete successfully, Milestone must establish an
effective distribution network. Several regulatory authorities also must approve
Milestone's products before they may be marketed. There can be no assurance that
Milestone will be able to compete successfully, that its competitors will not
develop technologies or products that render its products less marketable or
obsolete, or that it will succeed in improving its existing products,
effectively develop new products or obtain required regulatory approvals.

      The Wand(R) systems compete with non-automated disposable and reusable
syringes and other local anesthetic delivery systems generally selling at
significantly lower prices and utilizing established and well-understood
methodologies.

      The Wand(R) systems compete on the basis of its performance
characteristics and offers significant benefits to the practitioner and the
patient. It reduces fear, pain and anxiety for the patient and greatly reduces
practitioner stress levels. It can be used for all local anesthesia techniques
as well as new and modified techniques. These new techniques allow faster
procedures, shortening of chair time while minimizing numbing of the lips and
facial muscles of expression. It enhances productivity, reduces stress and
virtually eliminates pain and anxiety. In February 2001, a division of Dentsply
International ("Dentsply") unveiled its own "Computer Controlled Anesthetic
Delivery System" for dental application. Milestone has assessed the product from
a technological and competitive standpoint. Milestone believes that the Wand(R)
technology is far superior and that the competition presented by the product
merely serves to validate the technology implicit in The Wand(R).

      The Luer Lock needle competes with dental needles produced and distributed
by a number of major manufacturers and distributors and other producers or
distributors of dental products, many of whom have significant competitive
advantages because of their size, strength in the marketplace, financial and
other resources and broad product lines. Milestone competes on the basis of
convenience since it can package the product with an order for disposable
handpieces.

Dependence on a Few Major Customers

      In 2002 and 2001, sales to the Company's largest customer, Milestone
Medical Technologies, Ltd ("MMT") were approximately $566,389 and $410,000
(representing 14% and 10% of its entire annual sales, respectively).
Furthermore, accounts receivable due from MMT at December 31, 2002, and 2001,
were approximately $157,100 and $153,000 respectively. This represented 65% of
accounts receivable, at the end of 2002 as opposed to 42% at the end of 2001.


                                       7
<PAGE>

      In addition, sales in 2002 to Yoshida Dental Manufacturing Company of
Japan, Synca (our distributor in Canada) and Moyco (our distributor in Mexico)
were $70,370, $215,713 and $62,446 respectively. Collectively, they represented
9% of total sales for 2002.

Patents and Intellectual Property

Milestone's patents are believed to be material to its business and potential
growth. Milestone holds the following thirteen U.S. utility patents and three
U.S. design patents:

<TABLE>
<CAPTION>
                                                                                 U.S.
                                                                                Patent         Date of
                       Description                                              Number          Issue
                       -----------                                             ---------      --------
<S>                                                                            <C>            <C>
The Wand(R)
Hypodermic Anesthetic Injection Method                                         4,747,824       5/31/88
Hypodermic Anesthetic Injection Apparatus & Method
    (CompuFlo, CompuMed(TM), and CompuDent(TM))                                5,180,371       1/19/93
Dental Anesthetic and Delivery Injection Unit                                  6,022,337        2/8/00
Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,387)      6,152,734      11/28/00
Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,337)      6,132,414      10/17/00
Pressure/Force Computer Controlled Drug Delivery System                        6,200,289       3/13/01
Design for a Dental Anesthetic Delivery System Handle                           D427,314       6/27/00
Design for a Dental Anesthetic Delivery System Holder                           D422,361        4/4/00
Design for a Dental Anesthetic Delivery System Housing                          D423,665       4/25/00
Handpiece for Injection Device with a Retractable and Rotating Needle          6,428,517        8/6/02

Other
Hypodermic Syringe and Method                                                  4,877,934      12/19/88
Apparatus and Method for Sterilizing, Destroying and
    Encapsulating Medical Implement Wastes                                     4,992,217       2/12/91
Apparatus and Method for Verifiably Sterilizing
    Destroying and Encapsulating Regulated Medical Wastes                      5,078,924        1/7/92
Apparatus and Method for Verifiably Sterilizing,
    Destroying and Encapsulating Regulated Medical Wastes                      5,401,444       3/28/95
Self-Sterilizing Hypodermic Syringe and Method                                 5,512,730       4/30/96
Self-Sterilizing Hypodermic Syringe and Method                                 5,693,026       12/2/97
</TABLE>

                                   ----------

      Milestone also has filed five additional United States divisional patent
applications covering The Wand(R) and its technologies. In addition, Milestone
has submitted a new utility patent application based on a handpiece for
injection device with a retractable and rotating needle.

      Milestone has adopted the trademarks, The Wand(R), The Wand Plus(R).
SafetyWand(R), CompuDent(R), and CompuMed(R).

      Milestone relies on a combination of patent, copyright, trade secret, and
trademark laws and employee and third party nondisclosure agreements to protect
its intellectual property rights. Despite the precautions taken by Milestone to
protect its products, unauthorized parties may attempt to reverse engineer,
copy, or obtain and use products and information that Milestone regards as
proprietary. Litigation may be necessary to protect Milestone's intellectual
property rights and could result in substantial cost to and diversion of effort
by Milestone with no guarantee of success. The failure of Milestone to protect
its proprietary information and the expenses of doing so could have a material
adverse effect on its operating results and financial condition.


                                       8
<PAGE>

      While there are no current claims that Milestone's products infringe on
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against Milestone in the future with
respect to current or future products or that any such assertion may not require
Milestone to cease selling such products, or to enter into arrangements that
require Milestone to pay royalties, or to engage in costly litigation. Although
Milestone has received no claims of infringement, it is possible that
infringement of existing or future patents or proprietary rights of others may
occur. In the event that its products infringe upon patent or proprietary rights
of others, Milestone may be required to modify its processes or to obtain a
license. There can be no assurance that Milestone would be able to do so in a
timely manner, upon acceptable terms and conditions, or at all. The failure to
do so would have a material adverse effect on Milestone.

Government Regulation

      The CompuDent(TM) system (then known as The Wand(R)) and its disposable
handpiece were cleared for marketing for dentistry in the U.S. by the FDA in
July 1996 and the CompuMed(TM) (then known as the Wand Plus) was cleared for
marketing for medicine in the U.S. in May 2001.

      The manufacture and sale of medical devices and other medical products,
such as The Wand(R), are subject to extensive regulation by the FDA pursuant to
the FDC Act, and by other federal, state and foreign authorities. Under the FDC
Act, medical devices must receive FDA clearance before they can be marketed
commercially in the United States. Some medical products must undergo rigorous
pre-clinical and clinical testing and an extensive FDA approval process before
they can be marketed. These processes can take a number of years and require the
expenditure of substantial resources. The time required for completing such
testing and obtaining such approvals is uncertain, and FDA clearance may never
be obtained. Delays or rejections may be encountered based upon changes in FDA
policy during the period of product development and FDA regulatory review of
each product submitted. Similar delays also may be encountered in other
countries. Following the enactment of the Medical Device Amendments to the FDC
Act in May 1976, the FDA classified medical devices in commercial distribution
into one of three classes. This classification is based on the controls
necessary to reasonably ensure the safety and effectiveness of the medical
device. Class I devices are those devices whose safety and effectiveness can
reasonably be ensured through general controls, such as adequate labeling,
premarket notification, and adherence to the FDA's Quality System Regulation
("QSR"), also referred to as "good manufacturing practices" ("GMP") regulations.
Some Class I devices are further exempted from some of the general controls.
Class II devices are those devices whose safety and effectiveness reasonably can
be ensured through the use of special controls, such as performance standards,
post-market surveillance, patient registries, and FDA guidelines. Class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness. Generally, Class III devices are limited to
life-sustaining, life-supporting or implantable devices.

      If a manufacturer or distributor can establish that a proposed device is
"substantially equivalent" to a legally marketed Class I or Class II medical
device or to a Class III medical device for which the FDA has not required
premarket approval, the manufacturer or distributor may seek FDA marketing
clearance for the device by filing a 510(k) Premarket Notification. The 510(k)
Premarket Notification and the claim of substantial equivalence may have to be
supported by various types of data and materials, including test results
indicating that the device is as safe and effective for its intended use as a
legally marketed predicate device. Following submission of the 510(k) Premarket
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. By regulation, the
FDA has no specific time limit by which it must respond to a 510(k) Premarket
Notification. At this time, the FDA typically responds to the submission of a
510(k) Premarket Notification within 90 to 200 days. The FDA response may
declare that the device is substantially equivalent to another legally marketed
device and allow the proposed device to be marketed in the United States.
However, the FDA may determine that the proposed device is not substantially
equivalent or may require further information, such as additional test data,
before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could
delay Milestone's market introduction of its products and could have a material
adverse effect on Milestone. If a device that has obtained 510(k) Premarket
Notification clearance is changed or modified in design, components, method of
manufacture, or intended use, such that the safety or effectiveness of the
device could be significantly affected, separate 510(k) Premarket Notification
clearance must be obtained before the modified device can be marketed in the
United States.

      If a manufacturer or distributor cannot establish that a proposed device
is substantially equivalent to a legally marketed device, the manufacturer or
distributor will have to seek premarket approval of the proposed device. A
premarket approval application (a "PMA application") would be supported by
extensive data, including pre-clinical and


                                       9
<PAGE>

human clinical trial data, as well as extensive literature, to prove the safety
and efficacy of the device. Upon receipt, the FDA will conduct a preliminary
review of the PMA application to determine whether the submission is
sufficiently complete to permit substantive review. If sufficiently complete,
the submission is declared acceptable for filing by the FDA. The FDA has 180
days to review a PMA application once it has been declared acceptable for
filing. While in the past the FDA has responded to PMA applications within the
allotted time period, more frequently PMA reviews occur over a significantly
protracted time period, and generally take approximately two years or more from
the date of filing to complete. A number of devices for which FDA marketing
clearance has been sought have never been cleared for marketing.

      If human clinical trials of a proposed device are required and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specific number of investigational sites and could include the number of
patients approved by the FDA subject to any limitations imposed by the FDA, such
as the specific number of investigational sites and/or number of patients
approved by the FDA.

      Though CompuDent(TM) and CompuMed(TM) have received FDA marketing
clearance, there can be no assurance that any of Milestone's other products
under development will obtain the required regulatory clearance on a timely
basis, or at all. Even if regulatory clearance of a product is granted, such
clearance may entail limitations on the indicated uses for which the product may
be marketed. In addition, modifications may be made to Milestone's products to
incorporate and enhance their functionality and performance based upon new data
and design review. There can be no assurance that the FDA will not request
additional information relating to product improvements, that any such
improvements would not require further regulatory review thereby delaying the
testing, approval and commercialization of Milestone's development products or
that ultimately any such improvements will receive FDA clearance.

      Compliance with applicable regulatory requirements is subject to continual
review and will be monitored through periodic inspections by the FDA. Later
discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
fines, delays or suspensions of regulatory clearances, seizures or recalls of
products, operating restrictions and criminal prosecution and could have a
material adverse effect on Milestone.

      Milestone is subject to pervasive and continuing regulation by the FDA,
whose regulations require manufacturers of medical devices to adhere to certain
QSR requirements, also referred to as "Good Manufacturing Practices" ("GMP") as
defined by the FDC Act. QSR compliance requires testing, quality control and
documentation procedures. Failure to comply with QSR requirements can result in
the suspension or termination of production, product recall or fines and
penalties. Products also must be manufactured in registered establishments. In
addition, labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission. The export of
devices is also subject to regulation in certain instances.

      The Medical Device Reporting ("MDR") regulation obligates Milestone to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures that could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that Milestone
is not in compliance with the law, the FDA can institute proceedings to detain
or seize products, enjoin future violations, or assess civil and/or criminal
penalties against Milestone, its officers or employees. Any action by the FDA
could result in disruption of Milestone's operations for an undetermined time.

      In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a materially
adverse effect upon Milestone's ability to do business. In addition, expansion
of Milestone's operations into foreign countries will require Milestone to
obtain approvals, permits or licenses and comply with additional regulatory
schemes in those countries. Amendments to existing statutes and regulations,
adoption of new statutes and regulations and expansion of its business could
require Milestone to alter methods of operations at costs that could be
substantial, which could have an adverse effect on it. There can be no assurance
that Milestone will be able, for financial or other reasons, to comply with
applicable laws and regulations and approval, permit or license requirements.
Currently, Milestone believes it is in compliance with all applicable statutes
and regulations governing its operations and business as currently conducted,
including, without limitation, those in respect of The Wand(R) The WandPlus(R),
CompuDent(TM) and CompuMed(TM) and that


                                       10
<PAGE>

it has all necessary approvals, permits and licenses that are applicable to its
business, operations and products and services.

Product Liability

      Failure to use any of Milestone's products in accordance with recommended
operating procedures potentially could result in subjecting users to health
hazards or injury. Failures of its products to function properly could subject
Milestone to claims of liability. Milestone maintains liability insurance in an
amount which it believes to be adequate. However, there can be no assurance that
its insurance coverage will be sufficient to pay product liability claims
brought against Milestone. A partially or completely uninsured claim, if
successful and of significant magnitude, could have a material adverse effect on
Milestone.

Research and Development Activities

      During the 2002 and 2001 fiscal years, Milestone expensed $147,709 and
$49,943, respectively, on research and development activities. The higher costs
incurred during 2002 were primarily associated with the development of the
SafetyWand(TM).

Employees

      On December 31, 2002, Milestone reduced its full time staff in its
Deerfield facility from 11 to 4 and subsequently, in January 2003, closed
operations in that facility. In addition, Milestone had 5 full-time employees
including three executive officers, two part-time employees, and eight
independent sales representatives at December 31, 2002.

      Furthermore, subsequent to year end in January 2003, Milestone added two
customer service people to its Livingston, N.J. staff.

Certain Risk Factors That May Affect Growth And Profitability

      The following factors may affect the growth and profitability of Milestone
and should be considered by any prospective purchaser of Milestone's securities:

      History of Losses; Accumulated Deficit. Our operations commenced in
November 1995, when we acquired a 65% interest in Spintech. For the fiscal years
ending December 31, 1995, 1996, and 1997, we had limited revenues. For the
fiscal years ended December 31, 1998, 1999, 2000, 2001 and 2002, our revenues
were approximately $8.8 million, $2.9 million, $5.7 million, $4.1 million and
$4.1 million respectively. In addition, we have had losses for each of the years
ended December 31, 1995, 1996, 1997, 1998, 1999, 2000, 2001 and 2002, including
a loss of approximately $2.5 million for 2002. At December 31, 2002, we had an
accumulated deficit of approximately $41.8 million.

      Need for Greater Market Acceptance of our Technology. As with any new
technology, there is substantial risk that the marketplace will not accept the
potential benefits of such technology or be unwilling to pay for any cost
differential with the existing technologies. Market acceptance of The Wand(R),
CompuDent(TM) and CompuMed(TM) depends, in large part, upon our ability to
educate potential customers of their distinctive characteristics and benefits
and will require substantial marketing efforts and expense. More than 13,000
units of the CompuDent(TM) or its predecessor unit were sold in the U.S. over
the past four years. Sales of disposable handpieces in 2002 reflect a moderate
increase in usage of our dental and medical systems. However, from November 1999
through the present, Milestone has experienced steady disposable handpiece sales
in the U.S. We cannot assure that our current or proposed products will be
accepted by end users or that any of the current or proposed products will be
able to compete effectively against current and alternative products.

      Limited Financial Resources; Need for Additional Financing. Our capital
requirements have been and will continue to be significant, though we believe,
after giving effect to the debt restructuring and equity funding during 2002 and
through April 8, 2003, that we have sufficient working capital for the next 12
months. However, if we have underestimated our operating expenses or our
expected revenue, we will be required to borrow funds or sell equity securities,
or curtail or reduce our activities. We have no current arrangements for future
additional financing, except as disclosed herein. We cannot assure you that any
sources of additional financing will be available on acceptable terms,


                                       11
<PAGE>

or at all. To the extent that any future financing involves the sale of our
equity securities, the ownership interest of our stockholders could be
substantially diluted.

      Highly Competitive Industry; Technological and Product Obsolescence. We
face intense competition from many companies in the medical and dental device
industry, including well-established academic institutions, possessing
substantially greater financial, marketing, personnel, and other resources. Most
of our competitors have established reputations, stemming from their success in
the development, sale, and service of competing dental products. Further, rapid
technological change and research may affect our product. Current or new
competitors could, at any time, introduce new or enhanced products with features
that render our products less marketable or even obsolete. In February 2001, a
division of Dentsply unveiled its own "Computer Controlled Anesthetic Delivery
System". Milestone has not completely assessed the competition presented by the
product but believes that the introduction of the Dentsply product serves to
validate the technology implicit in the CompuDent(TM) and CompuMed(TM).
Therefore, we must devote substantial efforts and financial resources to improve
our existing products, bring our products to market quickly, and develop new
products for related markets. In addition, our ability to compete successfully
requires that we establish an effective distribution network. New products must
be approved by regulatory authorities before they may be marketed. We cannot
assure you that we can compete successfully, that our competitors will not
develop technologies or products that render our products less marketable or
obsolete, or that we will succeed in improving our existing products,
effectively develop new products, or obtain required regulatory approval for
those products.

      Limited Distribution; Need to Broaden Distribution Channels. Our future
revenues depend on our ability to market and distribute our anesthetic injection
technology successfully. Domestically we rely on a limited number of independent
representatives and in-house sales people. In international markets, we continue
to lack distributors in many markets. In order to be successful we will need to
expand our distribution channels.

      Patent and Intellectual Property Protection. We hold U.S. patents
applicable to CompuDent(TM), CompuMed(TM),The Wand(R) and SafetyWand(TM). We
rely on a combination of patent, trade secret, and trademark laws and employee
and third-party nondisclosure agreements, to protect our intellectual property
rights. Despite the precautions we have taken to protect our products,
unauthorized parties may attempt to reverse engineer, copy, or obtain and use
products and information that we regard as proprietary. We may have to initiate
lawsuits to protect our intellectual property rights. Such lawsuits are costly
and divert management's time and effort away from our business with no guarantee
of success. Our failure to protect our proprietary rights, and the expense of
doing so, could have a material adverse effect on our operating results and
financial condition. Although we have not received any claims of infringement,
it is possible that our products may infringe on the existing or future patents
or proprietary rights of others. If so, we may have to modify our processes or
to obtain a license. We cannot assure you that we will be able to do so in a
timely manner, upon acceptable terms and conditions, or at all.

      Dependence on Manufacturers. We have informal arrangements with certain
manufacturers with respect to the manufacture of our products. Termination of
the manufacturing relationship with any of these manufacturers could
significantly and adversely affect our ability to produce and sell our products.
Though alternate sources of supply exist and new manufacturing relationships
could be established, we would need to recover our existing tools or have new
tools produced. Establishing new manufacturing relationships could involve
significant expense and delay. Any curtailment or interruptions of the supply,
whether or not as a result or termination of the relationship, would adversely
affect us.

      Product Liability. We could be subject to claims for personal injury from
the alleged malfunction or misuse of our dental and medical products. While we
carry liability insurance which we believe is adequate, we cannot assure you
that the insurance coverage will be sufficient to pay such claims should they be
made. A partially or completely uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on us.

      Reliance Upon Management. We depend on the personal efforts and abilities
of Leonard Osser, our Chairman and Chief Executive Officer. While we have a key
man life insurance policy in the amount of $1,000,000 on the life of Mr. Osser,
any loss of his services could have a materially adverse effect on our business.


                                       12
<PAGE>

      No Dividends. We have never paid a cash dividend on our common stock.
Payment of dividends on our common stock is within the discretion of the Board
of Directors and will depend upon our earnings, capital requirements, financial
condition, and other relevant factors. We currently do not intend to declare any
dividends on our common stock in the foreseeable future. [Steve - does this
belong here?]

      Control by Certain Persons. Our current officers and directors own
approximately 23% of the outstanding shares of our common stock. Accordingly, by
reason of their stockholdings, and their control of the means for soliciting
stockholder votes, the officers and directors will be able to exercise control
and, in all likelihood, will be able to continue to elect all directors.

      Limitation of Director Liability. Our Certificate of Incorporation
provides that our directors are not personally liable to us or any of our
stockholders for monetary damages for breach of the fiduciary duty of care as a
director, including breaches that constitute gross negligence, subject to
certain limitations imposed by the Delaware General Corporation Law. Thus, under
certain circumstances, neither we, nor our stockholders, can recover damages
even if directors take actions that harm us.

      If We Are Unable to Satisfy the American Stock Exchange Maintenance
Requirements, Our Common Stock May Be Delisted from the American Stock Exchange
and as a result, our Liquidity and the Value of our Common Stock May be
Impaired. Shares of our common stock are currently listed on the American Stock
Exchange. Continued listing on the American Stock Exchange generally requires
that (i) we maintain at least $2,000,000 in stockholders' equity if the issuer
had losses in two of the most recent three years, at least $4,000,000 in
stockholders' equity if the issuer had losses in three of the most recent four
years, or at least $6,000,000 in stockholders' equity if the issuer has
sustained losses in its five most recent fiscal years; (ii) there be at least
200,000 shares in the public float valued at $1,000,000 or more, and (iii) the
common stock be held by at least 300 holders. Milestone has incurred a net loss
in each of the five years ended December 31, 2002 and expects to sustain
additional losses in 2003. Also, as of December 31, 2002, Milestone had a total
stockholders' deficit of approximately $6.2 million. On May 2, 2002, we received
a letter from the American Stock Exchange advising us that we have fallen below
the stockholders' equity criterion and requesting that we submit a recovery plan
detailing any actions taken, or planned to be taken within the next 18 months to
bring the Company into compliance. On June 10, 2002 we submitted a detailed
recovery plan to the American Stock Exchange showing how Milestone expects to
achieve stockholder equity of $4,000,000 by December 31, 2003. In response, we
received informal advice from the American Stock Exchange that in view of the
expected loss in 2002, we needed to demonstrate how we will achieve $6,000,000
in stockholders' equity by the end of 2003. On August 14, 2002, we submitted a
supplemental plan demonstrating how we expect to meet these requirements as
well. On August 23, 2002, the American Stock Exchange advised us that they had
determined that the plan makes a reasonable demonstration of Milestone's ability
to regain compliance with the continued listing standards by the conclusion of
the plan period at the end of 2003. The continued listing of our securities on
the American Stock Exchange during this period will be subject to periodic
reviews by the Exchange. Failure to show progress consistent with the plan or to
regain compliance by the end of the plan period could still result in the
Milestone being delisted. In the event that our securities are delisted from the
American Stock Exchange, trading, if any, in the common stock and warrants would
be conducted in the over the counter market in the so-called "pink sheets" or on
the NASD's "OTC Bulletin Board." Consequently, the liquidity of our securities
could be impaired, not only in the number of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts and new media coverage of Milestone, and lower prices for our
securities than might otherwise be obtained.

      If Our Shares of Common Stock Are Removed or Delisted from The American
Stock Exchange, the Ability of Stockholders to Sell Our Common Stock and
Warrants in the Secondary Market Could Be Restricted. The Securities and
Exchange Commission has adopted regulations which generally define "penny stock"
to be an equity security that has a market price, as defined, of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions, including an exception of an equity security that is quoted on the
American Stock Exchange. If our shares of common stock are removed or delisted
from the American Stock Exchange, they may become subject to rules that impose
additional sales practice requirements on broker-dealers who sell these
securities. For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the


                                       13
<PAGE>

purchaser of such securities and have received the purchaser's written consent
to the transactions prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered underwriter, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, among
other requirements, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. As such, the "penny stock" rules, in the event
our securities are delisted from the American Stock Exchange, may restrict the
ability of stockholders to sell our common stock and warrants in the secondary
market.

      Government Regulation and FDA Clearance. The manufacture and sale of
Milestone's CompuDent(TM), CompuMed(TM) and The Wand(R) are subject to extensive
regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act ("FDC
Act"), and by other federal, state and foreign authorities. Under the FDC Act,
these medical devices must receive FDA clearance before they can be marketed
commercially in the U.S. Some products must undergo rigorous pre-clinical and
clinical testing and an extensive FDA approval process before they can be
marketed. These processes can take a number of years and require the expenditure
of substantial resources. The time required for completing such testing and
obtaining such approvals is uncertain, and FDA clearance may never be obtained.
Delays or rejections may be based upon changes in FDA policy during the period
of product development and FDA regulatory review of each submitted application.
Similar delays also may be encountered in other countries. While CompuDent(TM),
CompuMed(TM) and The Wand(R) have received FDA marketing clearance, there can be
no assurance that all of our products under development will obtain the required
regulatory clearance on a timely basis, or at all. Even if regulatory clearance
of a product is granted, such clearance may impose limitations on the indicated
uses for which the product may be marketed. In addition, modifications may be
made to our products to incorporate and enhance their functionality and
performance based upon new data and design review. There can be no assurance
that the FDA will not request additional information relating to product
improvements, that any such improvements would not require further regulatory
review thereby delaying the testing, approval and commercialization of our
products or that ultimately any such improvements will receive FDA clearance.
FDA regulations also require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("GMP"), which include testing, design,
quality control and documentation procedures. Compliance with applicable
regulatory requirements is subject to continual review and will be monitored
through periodic inspections by the FDA. Later discovery of previously unknown
problems with a product, manufacturer, or facility may result in restrictions on
such product or manufacturer, including fines, delays or suspensions of
regulatory clearances, seizures or recalls of products, operating restrictions
and criminal prosecution and could have a material adverse effect on us.

      Possible Volatility of Market Price. Shares of our common stock currently
are traded on the American Stock Exchange and the Pacific Stock Exchange. From
time to time the market prices of dental and medical product companies have been
affected by various factors, including adverse publicity. We cannot assure you
that the market price of our common stock will not be volatile as a result of
factors such as our financial results, possible adverse publicity resulting from
any infractions of governmental regulations and various other factors affecting
dental and medical product companies or the market generally. In recent years
the stock market has experienced wide price fluctuations not necessarily related
to the operating performance of such companies.

      Effect of Outstanding Warrants and Options. We currently have outstanding
options and warrants to purchase 4,844,355 shares of our common stock at prices
ranging from $.55 to $23.00 per share. Holders of these warrants and options are
given the opportunity to profit from a rise in the market price of our common
stock and are likely to exercise their securities at a time when we would be
able to obtain additional equity capital on more favorable terms. Thus, the
terms upon which we will be able to obtain additional equity capital may be
adversely affected, since the holders of outstanding options and warrants can be
expected to exercise them at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable to us than the exercise terms
provided by such outstanding securities. We have granted registration rights
with respect to shares of our common stock covered by the warrants.


                                       14
<PAGE>

Item 2. Description of Property

      On March 20, 1997, Milestone opened new corporate headquarters and
administrative offices occupying approximately 2,693 square feet at 220 South
Orange Avenue, Livingston Corporate Park, Livingston, New Jersey. Milestone
occupies this space under a lease that, in March 2002 was extended for an
additional five year period, at a cost Milestone believes to be competitive.
Spintech's accounting functions are located in the corporate office. From
October 1999 until December 2002, Milestone was operating a distribution center
for its products and a customer service office in a 5,470 square feet facility
in Deerfield, Illinois. In December 2002, Milestone initiated the transition of
its customer service office to its corporate headquarters in Livingston, New
Jersey and its distribution and logistics center to a third party, Design Centre
of York of Pennsylvania. The resulting shutdown of the Deerfield location was
completed during January 2003. As of March 31, 2003, the Company was negotiating
with the landlord of the Deerfield facility for a rent settlement.

Item 3. Legal Proceedings

      On June 10, 2002, a former distributor, Henry Schein, Inc., sued Milestone
in the Supreme Court of the State of New York for $110,851 claimed to be due
them for returned merchandise. Milestone denies any liability. The parties are
currently engaged in discovery proceedings. Milestone believes it has
meritorious defense to this complaint based, in part, on its position that the
plaintiff has no right to return the goods.

Item 4. Submission of Matters to a Vote of Security Holders

      (a)   Election of Board of Directors

      Milestone held its 2002 Annual Meeting of Stockholders on December 3,
2002. At the meeting, stockholders reelected all board members. Presented below,
are the votes cast for each director nominee:

    ----------------------------------------------------------------------
                                                   Withhold
             Name                 For             Authority        Abstain
    ----------------------------------------------------------------------
    Leonard Osser             11,268,142                            6,484
    ----------------------------------------------------------------------
    Paul Gregory              11,272,092                            2,534
    ----------------------------------------------------------------------
    Leonard M. Schiller       11,272,092                            2,534
    ----------------------------------------------------------------------

      (b)   Appointment of J.H. Cohn LP as Milestone's independent accountants
            for the fiscal year ending December 31, 2002.

         For 11,262,492            Against 6,599              Abstain 5,535
             ----------                    -----                      -----


                                       15
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

      (a) Market Information

      Milestone's Common Stock had been traded on the Nasdaq SmallCap Market
under the symbols "USOS" from November 3, 1995, through December 5, 1996, and
"WAND" from December 6, 1996, through January 6, 1998. The Common Stock has
traded on the Nasdaq National Market under the symbol "WAND" from January 7,
1998, through April 22, 1998. Since such date, the Common Stock has traded on
the American Stock Exchange under the symbol "MS" and the Pacific Stock Exchange
under the symbol "MS."

The following table sets forth the high and low closing prices of our Common
Stock, as quoted by the American Stock Exchange. Such quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.

                                          High          Low
                                          ----          ---
                2001
                First Quarter           $   2.00      $  .85
                Second Quarter          $   1.00      $  .62
                Third Quarter           $   1.75      $  .68
                Fourth Quarter          $    .73      $  .50

                2002
                First Quarter           $    .68      $  .52
                Second Quarter          $   1.00      $  .58
                Third Quarter           $    .68      $  .29
                Fourth Quarter          $    .40      $  .21

                2003
                First Quarter           $    .34      $  .14

      (b) Holders

      As of March 29, 2003, the number of record holders of the Common Stock of
Milestone was 151 Milestone believes that there are more than 3,500 beneficial
holders of its Common Stock.

      (c) Dividends

      The holders of our Common Stock are entitled to receive such dividends as
may be declared by Milestone's Board of Directors. Milestone has not paid and
does not expect to declare or pay any dividends in the foreseeable future.

Sales of Unregistered Securities

      On January 31, 2000, Milestone issued five-year warrants to purchase an
aggregate of 142,857 shares of Common Stock to holders of Milestone's 10%
Secured Promissory Notes, including Cumberland Associates LLC, Strategic
Restructuring Partnership L.P., a former principal of Cumberland Associates, two
officers of the Corporation, an affiliate of one of its directors and six other
individuals. The warrants were issued as consideration for the loans made by
these investors to Milestone at the time of issuance. Each of the warrants, as
originally issued, contained a provision gradually escalating its exercise price
from $1.75 in 2000 to a maximum of $7.00 in 2004. However, in March 2001, the
exercise price of these warrants was amended by agreement between Milestone and
the warrant holders to provide for an exercise price of $1.75 per share up to
the date of maturity. The warrants were issued pursuant to the exemption from
registration under the Securities Act of 1933, as amended (the "Act"), provided
by Sections 4(2) and 4(6) of the Act.


                                       16
<PAGE>

      Morse, Zelnick, Rose and Lander, LLP, legal counsel to Milestone and the
firm in which Steve Zelnick, a former Director in Milestone, is a partner, is
the holder of warrants to purchase 118,000 shares of Common Stock and warrants
to purchase 83,333 units, each unit consisting of one share of Common Stock and
one warrant to purchase one share of Common Stock at an exercise price of
$3.125. On February 3, 2000, Milestone reduced the exercise price of all these
warrants to $1.25 and extended their exercise period to February 2, 2002.
Consideration for the amendments were legal services rendered to Milestone by
Morse, Zelnick, Rose & Lander, LLP. The warrants originally were issued pursuant
to the exemption from registration under the Act provided by Sections 4(2) and
4(6) of the Act.

      On July 31, 2000, December 7, 2000, and January 26, 2001, Milestone issued
to K. Tucker Andersen, a major existing investor, warrants to purchase 70,000,
80,000 and 20,000 shares of Common Stock, respectively, at an exercise price of
$3.00, $1.25 and $1.875 per share, respectively. Each of the aforementioned
warrants are exercisable for five years from the date of issuance and were
issued as consideration for loans of a total of $1,000,000 that the investor
made to Milestone. The loans, which are evidenced by a senior secured promissory
note, bear an 8% interest that is payable quarterly in arrears. Principal
payments, in the amount of $500,000 each, are due on June 30, 2003, and December
31, 2003, respectively. The warrants were issued pursuant to the exemptions from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

      On January 22, 2001, Milestone entered into an agreement to grant to
Hillgreen Investments Limited ("Hillgreen") warrants to purchase 100,000 shares
of Common Stock as consideration for opening an equity line of credit with
Milestone. In addition, as consideration for the services rendered by Jesup &
Lamont Securities Corporation ("Jesup & Lamont") as placement agent in
connection with the equity line of credit, Milestone granted to Jesup & Lamont
warrants to purchase 75,000 shares of Common Stock. The warrants issued to
Hillgreen and Jesup & Lamont are exercisable at any time prior to January 22,
2003 at a price of $1.86 per share, and were issued pursuant to the exemptions
from registration under the Act provided by Sections 4(2) and 4(6) of the Act.

      On January 30, 2001, Milestone issued to Shaul Koren 92,308 shares of
Common Stock, as payment for consulting services performed by Mr. Koren,
pursuant to exemptions from registration under the Act provided by Sections 4(2)
and 4(6) of the Act.

      On February 8, 2001, Milestone issued to Cumberland Associates LLC,
Strategic Restructuring Partnership L.P., a former principal of Cumberland
Associates, two officers of the Corporation, an affiliate of one of its
directors and six other individuals, an aggregate of 27,641 shares of Common
Stock in payment of interest on the 10% Secured Promissory Notes issued to these
investors on January 31, 2000. The stock was issued pursuant to the exemption
from registration under the Act provided by Sections 4(2) and 4(6) of the Act.

      On March 9, 2001, Milestone issued to K. Tucker Andersen, a major existing
investor a warrant to purchase 100,000 shares of Common Stock, exercisable at
any time for five years from the date of issuance at $1.10 per share, as
consideration for opening a $500,000 line of credit. Milestone pays a 2%
facility fee on the line of credit and interest at a rate of 10% per annum on
monies borrowed. On December 28, 2001, Milestone signed an agreement to issue
33,840 units, consisting of one share and one warrant to purchase one share in
payment of the $27,072 accrued interest through December 31, 2001. The warrants
are exercisable at $.80 per share through January 31, 2003, thereafter at $1.00
per share through January 31, 2004, and thereafter at $2.00 per share through
January 31, 2007, at which time they will expire. All of these units and
warrants were issued in February 2002 pursuant to the exemptions from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

      In March 2001, Milestone signed an agreement with News USA, Inc. and
Vested Media Partners, Inc. to increase the awareness of healthcare
professionals and the public to the benefits of CompuDent(TM), CompuMed(TM), The
Wand(R) and CompuFlo(TM) technologies. Under the agreement, News USA, Inc. is
required to prepare, write and seek to place in newspapers and other media,
articles about Milestone's products and technologies. As consideration for their
services, Milestone granted to News USA, Inc. and Vested Media Partners, Inc.
warrants to purchase an aggregate of approximately 1,172,000 shares of
Milestone's Common Stock at prices increasing from $1.28 to $3.00 per share
during the 3-year warrant term. The warrants were issued pursuant to the
exemptions from registration under the Act provided by Sections 4(2) and 4(6) of
the Act.

      On December 28, 2001, Milestone entered into an agreement with its CEO,
Leonard Osser, to issue to him 614,183 units in payment of $491,346 in
compensation, specifically, his salary as Chief Executive Officer of Milestone,
which he


                                       17
<PAGE>

voluntarily has deferred since August 5, 2000. In January 2002, the units were
issued and each unit consists of one share of Milestone's common stock and one
warrant to purchase an additional share of such common stock. The warrants are
exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per
share through January 31, 2004, and thereafter at $2.00 per share through
January 31, 2007, at which time they will expire. The warrants were issued
pursuant to the exemptions from registration under the Act provided by Sections
4(2) and 4(6) of the Act.

      In December 2001, Milestone entered into an agreement with K. Tucker
Andersen, an existing investor, to issue 325,000 units. The units, which were
issued in January 2002, consist of one share of Milestone common stock and one
warrant to purchase an additional share of such common stock. The warrants are
exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per
share through January 31, 2004, and thereafter at $2.00 per share through
January 31, 2007, at which time they will expire. The units were issued in
exchange for $185,000 and the cancellation of a 10% convertible promissory note
issued in October 2001, under which an amount of $75,000 was due at that time.

      On January 14, 2002, Milestone issued 33,840 units, consisting of one
share of common stock and one warrant to purchase an additional share of common
stock to K. Tucker Andersen in exchange for payment of accrued interest totaling
$27, 072.

      In July 2002, the Company issued 187,500 units consisting of one share of
common stock and one warrant to purchase an additional share of common stock to
a vendor in accordance with the agreement valued at $150,000 (See Note B).

      In August 2002, the COmpany issued 200,000 shares of common stock in
exchange for payment of $90,000 of outstanding legal fees.

                                       18
<PAGE>

ITEM 6. Management's Discussion and Analysis or Plan of Operation

New Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 144, " Accounting
      for the Impairment or Disposal of Long- Lived assets. Among other things,
      SFAS No. 144, provides guidance on the implementation of previous
      pronouncements related to when and how to measure impairment losses and
      how to account for discontinued operations. FAS No. 144 had no material
      impact on the Company's financial position, results of operations or cash
      flows.

      In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
      Disposal Activities". SFAS No.146 addresses financial accounting and
      reporting for costs associated with exit or disposal activities and
      nullifies Emerging Issues Task Force (" EITF") issue No. 94-3, " Liability
      Recognition for Certain Employee Termination Benefits and Other Costs to
      Exit and Activity". SFAS No. 146 requires that liability for a cost
      associated with an exit or disposal activity be recognized when the
      liability is incurred. This statement also established that fair value is
      the objective for initial measurement of the liability. The provision of
      SFAS No. 146 are effective for exit or disposal activities that initiated
      after December 31, 2002. The Company does not expect that the adoption of
      SFAS No. 146 will have a material impact on its consolidated financial
      statements.

      In December 2002, SFAS No. 148, " Accounting for Stock Based Compensation-
      Transition and Disclosure an Amendment of SFAS No. 123". SFAS No. 148
      amends SFAS No. 123, to provide alternative methods of transition for a
      voluntary change to the fair vale based method of accounting for
      stock-based employee compensation. In addition, SFAS No. 148 amends the
      disclosure requirements of SFAS No. 123 to require prominent disclosures
      in both annual and interim financial statements about the method of
      accounting for stock- based employee compensation and the effect of the
      method used on reported results. The Company will adopt SFAS No. 148,
      effective January 1, 2003. The Company is currently evaluating the
      requirements and does not believe that the adoption of SFAS No. 148 will
      have any material impact on its consolidated financial statements.

Summary of Significant Accounting Policies

Inventory

      Inventories principally consist of finished goods and component parts
      stated at the lower of cost (first-in, first-out method) or market.

      Impairment of Long-Lived Assets

      The Company reviews long-lived assets for impairment whenever
      circumstances and situations change such that there is an indication that
      the carrying amounts may not be recovered.

Revenue Recognition

      Revenue is recognized when title passes at the time of shipment and
      collectibility is assured.

Use of Estimates

      The preparation of the consolidated financial statements in conformity
      with accounting principles generally accepted in the United States of
      America requires management to make estimates and assumptions in
      determining the reported amounts of assets and liabilities and disclosure
      of contingent assets and liabilities at the date of the financial
      statements and reported amounts of revenues and expenses during the
      reporting period. The most significant estimates relate to the allowance
      for doubtful accounts, advances to contract manufacturer, inventory
      valuation allowances, and valuation allowances on deferred tax assets.
      Actual results could differ from those estimates.

Overview

      The results from operations for the year ended December 31, 2002, reflect
      Milestone's concentrated effort to drastically reduce its overhead while
      slowly growing its user base in the dental market and introducing the
      Wand(R) technology in a variety of medical disciplines. The loss for the
      year, approximately $2.5 million, represents a 37% reduction from the same
      period in 2001.


                                       19
<PAGE>

      During the year ended December 31, 2002, Milestone reduced its average
      monthly cash used from operations to less than $60,000, completed a $4.1
      million debt restructuring program, and obtained $785,000 in additional
      financing. The program included equity conversions, deferring payment on
      certain payables restructuring of its debt and outsourcing our sales
      force.

      Also, in 2002, Milestone signed an agreement for the distribution of
      CompuDent(TM) in eastern U.S., a national hair restoration provider agreed
      to equip its offices with the CompuMed(TM), and the U.S. Patent Office
      granted broad patent protection of a new safety engineered needle
      technology to be issued to the Company.

      Finally, in December 2002, Milestone began the transition of its
      telemarketing and distribution center from Illinois to its corporate
      office and an independent logistic company, respectively.

Fiscal year ended December 31, 2002 compared to fiscal year ended December 31,
2001

Statement of Operations

      Net sales for the years ended December 31, 2002 and 2001 were $4,074,006
      and $4,093,710, respectively. The $23,988 decrease is attributable
      primarily to a decrease in domestic sales of CompuDent, $71,592 generated
      from prophy angle sales in 2001, and the Company's decision to consolidate
      a $94,500 shipment to its South African distributor with its January
      order. The decrease was partially offset by a 13% or $229,183 increase in
      domestic dental sales of the Wand(R) handpiece, $207,000 increase in The
      Wand(R) handpiece sales to foreign distributors and CompuMed sales of
      approximately $163,000. Lower CompuDent(TM) sales in the U.S. are the
      direct result of the downsizing of the Company's sales and marketing
      effort, in that area. Furthermore, the Company sold its prophy angle
      business in November of 2001 and the consolidation of the December and
      January orders of its South African distributor resulted in a savings of
      freight charges.

      Cost of sales for the years ended December 31, 2002 and 2001 were
      $1,980,949 and $1,973,156 respectively. The $7,793 increase is
      attributable primarily to lower sales volume.

      For the year ended December 31, 2002, the Company generated a gross profit
      of $2,093,057 or 51.4% as compared to a gross profit of $2,120,554 or
      51.8% for the year ended December 31, 2001. The decrease in gross profit
      is mainly attributable to an increase in sales revenue generated from
      sales to foreign distributors. The gross profit from these sales is lower
      than the aggregate gross profit generated from domestic sales.

      Selling, general and administrative expenses for the years ended December
      31, 2002 and 2001 were $3,588,836 and $5,271,032, respectively. The
      $1,682,196 decrease is attributable primarily to an approximate $858,000
      decrease in expenses associated with the sale and marketing of The Wand(R)
      technology due to the transitioning of its sales force to independent
      representatives and an approximate $293,700 decrease in legal fees. In
      addition, during 2001, the Company issued in aggregate, 242,308 shares for
      services rendered with a value of $247,649 in non-cash compensation or
      consulting services. The Company had incurred additional legal expenses in
      2001 due to advertising agreements, medical patent registrations and
      additional patents on The Wand(R) and CompuFlo(TM) technologies.

      The Company incurred costs totaling $26,067 as it began the closing
      process of its Illinois facility.

      Research and development expenses for the years ended December 31, 2002
      and 2001 were $147,709 and $49,943, respectively. The $97,766 increase is
      the result of higher costs incurred during 2002, which were associated
      with the development of the Company's safety needle.


                                       20
<PAGE>

      Other income for the years ended December 31, 2002 and 2001 were $80,000
      and $64,487. the revenues were generated from the sale of Milestone's
      prophy angle business in 2001 and the related consulting contract which
      expired in October 2002.

      The loss from operations for the years ended December 31, 2002 and 2001
      were $1,669,555 and $3,200,421, respectively. The $1,530,866 decrease in
      loss from operations is explained above.

      The Company incurred interest expense of $850,642 for the year ended
      December 31, 2002 as compared to $858,582 for the years ended December 31,
      2001. The decrease of $7,940 is attributable to a lower average interest
      rate and partially offset by an increase in outstanding debt obligations.

      The net loss for the years ended December 31, 2002 was $2,440,197 as
      compared to a net loss of $3,991,580 for 2001. The $1,551,383 decrease in
      net loss is primarily attributable to lower selling and administrative
      expenses.

Liquidity and Capital Resources

      As shown in the accompanying consolidated financial statements, the
      Company incurred net losses of approximately $2,440,000 and $3,992,000 and
      negative cash flows from operating activities of approximately $676,000
      and $1,385,000 during 2002 and 2001, respectively. As a result, the
      Company had a cash balance of approximately $10,000, a working capital
      deficiency of approximately $5,214,000 and a stockholders' deficiency of
      approximately $6,106,000 as of December 31, 2002. These matters raise
      substantial doubt about the Company's ability to continue as a going
      concern.

      Management believes that, in the absence of a substantial increase in
      revenue, it is probable that the Company will continue to incur losses and
      negative cash flows from operating activities through at least December
      31, 2003 and that the Company will need to obtain additional equity or
      debt financing, as well as to continue its ability to defer its
      obligations, to sustain its operations until it can expand its customer
      base and achieve profitability.

      To date, the Company has taken certain steps in order to reduce its
      operating expenses and utilization of cash. These steps include, amongst
      others, the following:

            o     Commencing in 2001 and continuing through 2002, the Company
                  reconfigured its sales force. The Company went from
                  maintaining a large internal sales force to utilizing
                  independent sales representatives and distributors.

            o     The Company reduced administrative personnel and telemarketers
                  by approximately ten people.

            o     On January 31, 2003, the Company completed the closing of the
                  Deerfield, IL facility. The customer support, service and
                  other back-office functions previously conducted, in whole or
                  in part, at this location were consolidated into the Company's
                  New Jersey location. The receiving, shipping and storage
                  functions, which were also previously done at this location,
                  will be outsourced at an independent warehouse located in
                  Pennsylvania. The closure of the Illinois facility will result
                  in reductions in overhead and other costs, while improving
                  operational efficiencies.

            o     Obtained an agreement from its Chief Executive
                  Officer/Stockholder to defer 2002 and 2003 compensation,
                  aggregating $640,000 until April 2004.

            o     Restructured and extended the maturity dates of its debt
                  obligations (see Note H). Further, as part of the debt
                  restructuring, the Company obtained agreements from certain of
                  its note holders enabling it to convert debt and related
                  interest aggregating approximately $4,751,000 into shares of
                  common stock. It is the Company's intention to have this
                  conversion completed sometime during the third quarter 2003.

            o     Obtained an agreement from one of its attorneys to convert an
                  additional $160,000 of the amount owed into shares of common
                  stock.


                                       21
<PAGE>

      In addition, during February 2003, the Company received a $200,000 note
      payable from an existing investor. The note is convertible into shares of
      common stock, at the Company's option, which it plans to do during the
      third quarter of 2003. During April 2003, the Company received an
      additional $900,000 line of credit from the same investor, which is
      scheduled to mature on January 1, 2005, unless extended.


                                       22
<PAGE>

Debt Restructuring

20% Promissory Notes

On March 31, 2002, the senior secured zero coupon 20% promissory notes were
originally due. On March 31, 2002, the Company obtained the required consents
from the senior secured zero coupon 20% promissory note noteholders whose
outstanding face value (principal plus accrued interest) was collectively
greater then 80% of the total outstanding face value of the obligations to
extend the maturity date up to 30 days.

On April 15, 2002, the received the required consents from the senior secured
zero coupon 20% promissory noteholders whose outstanding face value (principal
plus accrued interest) was collectively greater then 80% of the total
outstanding face value of the obligation and the following occurred; (1) the
notes were extended to July 1, 2003, and (2) the interest rate was reduced to 6%
if paid in cash or reduced to 12% if paid in common stock. Additionally, at the
option of the Company, the face value on the maturity date will be payable
either in cash or in the Company's common stock, valued at the average closing
price per share for the five trading days prior to July 1, 2003. Furthermore,
for the holders who had given their consent, the Company will issue to these
holders 120 shares of the Company's common stock for each $1,000 face amount
outstanding at maturity.

Private Placements

6%/12% Promissory Notes

On March 16, 2001, the Company restructured its obligations to the holders of
its 10% Senior Secured Promissory Notes. Under the terms of the agreement, each
of the noteholders agreed to exchange their 10% Notes for a new, zero coupon
note (the "Zero Coupon Note") (a) Paying interest at 20% per annum until
maturity on March 31, 2002, (b) having a face amount equal to the outstanding
principal owed to the noteholders plus accrued interest and interest payable
until maturity, (c) giving the Company the option to pay the face value of the
notes in cash or in shares of the common stock, provided that the shares have
been registered under the Securities Act of 1933, and (d) paying each noteholder
108% of the face value of his Zero Coupon Note, including unearned interest to
maturity, if there is a change of control of Milestone. Moreover, the warrants
previously issued to the noteholders were repriced back to the initial exercise
price of $1.75 per share at the date of grant.

As a result of the Company restructuring its obligations, the unamortized
portion of the debt discount and deferred financing costs were amortized through
March 31, 2002.

On March 31, 2002, the holders agreed to extend the maturity date up to 30 days.
Subsequently, on April 15, 2002, the holders additionally agreed to extend the
promissory notes to July 1, 2003 and to lower the interest rate to 6% if paid in
cash or to 12% if paid in common stock. In connection with the extension, the
Company recorded $16,215 in deferred financing charges relating to professional
fees and $140,203 of deferred financing costs relating to consideration to the
note holders valued at $120 per share of the Company's common stock for each
$1,000 face amount outstanding at maturity which increased the aggregate carry
value of the notes by $140,203. The Company is accruing interest expense at 12%.
These deferred financing costs are being amortized through July 1, 2003.

In August 2000, the Company borrowed $1,000,000 which consists of two loans from
two funds managed by Cumberland Associates LLC, and bear interest at 20% per
year and payable in cash or through the issuance of additional 20% notes on
which both interest and principal are payable. The loans are secured by
substantially all assets of the Company and are subordinated to the 6%/12%
senior secured promissory notes that were amended April


                                       23
<PAGE>

15, 2002. The Company can prepay the loans in cash at any time. The Company can
prepay the notes and accrued interest with common stock value at its option
after March 31,2001. Stock issued in lieu of payment of the debt will be valued
at 85% of the then market price. For the year ended December 31, 2002, the
Company converted $257,865 of accrued interest into principal. During 2001, the
Company had previously converted $222,417 of accrued interest into principal. On
April 12, 2002, Cumberland Associates LLC agreed to extend the maturity date of
these loans through July 1, 2003 and to lower the interest rate from 20% to 6%,
if paid in cash, or 12% if paid in common stock. In connection with the
extension, the Company recorded $16,215 of deferred financing charges relating
to professional fees and $189,369 relating to consideration issued to the note
holders valued at $120 per share of the Company's common stock for each $1,000
face amount outstanding at maturity. The Company is currently accruing interest
expense at 12%. Accordingly, the deferred financing costs and the unamortized
financing charges are being amortized through July 1, 2003.

8% Promissory Notes

The 8% promissory notes consist of the following:

1)    On July 31, 2000, the Company established a $1,000,000 credit facility
      with a major existing investor. Initially, $500,000 was borrowed under the
      line, which was due on June 30, 2003. In December 2000, and January 2001,
      the Company borrowed under the credit facility an additional $400,000 and
      $100,000, respectively, due on December 31, 2003. In connection with the
      initial $500,000, the investor received five-year warrants to purchase
      70,000 shares of the Company's common stock, exercisable at $3.00 per
      share. In connection with the $400,000, the investor received five-year
      warrants to purchase 80,000 shares of the Company's common stock
      exercisable at $1.25 per share. In connection with the $100,000, the
      investor received five-year warrants to purchase 20,000 shares of the
      Company's common stock at $1.25 per share. On April 12, 2002, the investor
      agreed to extend the maturity date of the $500,000 originally due June 30,
      2003 to August 1, 2003. At the option of the Company this $500,000 can be
      convertible into common stock. Accordingly, in connection with the
      extension, the unamortized debt discount is being amortized to August 1,
      2003. On April 8, 2003, the investor agreed to extend the maturity date of
      the $500,000 and interest originally due December 31, 2003 to April 30,
      2004. Accordingly, only $500,000 of loans have been recorded as long term
      debt in the accompanying consolidated financial statements.

2)    During 2002, the Company issued a total of $1,185,000 promissory notes to
      an existing investor. The notes bear interest at 8% if paid in cash and
      10% if paid in stock and mature on August 1, 2003. At the option of the
      Company, the principal and interest are payable on the maturity date in
      common stock. Additionally, the note will convert into the Company's
      common stock if the Company issues 1,000,000 shares or raises at least
      $1,000,000 from the sale of equities prior to August 1, 2003, at the
      market price in that transaction but not less than $.50 per common share,
      or more than $2.00 per share. The Company is accruing interest at 10%.

9% Promissory Note

In April 2000, the CEO, agreed to provide to Milestone a $200,000 line of credit
from which funds could be drawn until December 31, 2000, and having a maturity
of February 2001. In July 2000, Milestone borrowed the $200,000 under the line
of credit. The CEO has agreed to defer all principal and interest payments until
April 1, 2004.

Operations

The Company believes that CompuDent(TM), CompuMed(TM) and The Wand(R) technology
represents a major advance in the delivery of local anesthesia and that the
potential applications of this technology extends beyond dentistry. Based on
scientific and anecdotal support, the Company contends that CompuMed(TM) could
enhance the practices of the estimated 90,000 U.S. based physicians included in
such non-dental disciplines as Podiatry, Hair Restoration Surgery, Plastic
Surgery, Dermatology, colorectal surgery and procedures in Orthopedics, OB-GYN
and Ophthalmology.

Despite limited resources, the Company has continued its efforts to realize the
market potential of The Wand(R) and become profitable. These steps include (i)
relaunching of The Wand Plus(TM) drive unit domestically, under the name
CompuDent(TM), (ii) distribution of CompuDent(TM) through a host of channels
(i.e. independent sales representatives, an inside sales group and a major
dental distributor), (iii) launching The Wand Plus(TM) drive unit for medical
purposes and marketing it as CompuMed(TM), (iv) increasing presence at medical
trade shows, (v) advertising to


                                       24
<PAGE>

increase the awareness of the product, (vi) implementing cost reduction
programs, and (vii) restructuring certain outstanding obligations. Management
believes that these steps are critical to the realization of Milestone's
long-term business strategy.

In March 2002, Milestone announced an agreement whereby Medical Hair Restoration
("MHR") will equip each of its 21 Surgery centers in the U.S. with CompuMed(TM).

In April 2002, Milestone announced acceptance of an independent clinical study
concluding that use of Milestone's computer controlled local anesthetic delivery
technology in nasal and sinus surgery produced a "safe, acceptable, tolerable,
and cost effective method of sedating patients creates a sense of security and
adds to the ultimate satisfaction associated with nasal surgery." The study also
concluded "Recovery room and expensive hospital costs are avoided, making nasal
surgery more affordable and within reach of a greater range of potential nose
surgery patients." One of the study's authors, Dr. Pieter Swanepoel, a
world-renowned surgeon, presented his study at the 8th International Symposium
of the Academy in New York City in May 2002. The new technique is an adaptation
of similar regional nerve blocking techniques used by dental surgeons and
replaces the need for costly and invasive general anesthesia. Dr. Swanepoel in
conducting his research using pre-production prototypes of our CompuFlo(TM)
system, since it allowed him to measure flow rate and tissue pressure and
determine parameters for optimal results. The core technology embodied in the
CompuMed(TM) unit may be used to deliver local anesthesia within the parameters
ascertained by Dr. Swanepoel to produce optimal results and then achieve
conscious sedation in nasal surgery.

In May 2002, Milestone signed a dental distribution agreement with Benco Dental
under which Benco Dental will distribute CompuDent(TM) through their direct
sales organization. Benco has the right to become the exclusive dental
distributor in selected states within the United States if it achieves certain
sales objectives. Milestone is providing the initial sales and product training
to the entire Benco sales organization through September 2002. Following these
initial training sessions, Milestone will support this effort through "Dealer
Managers and Technical Support Specialists."

In August 2002, the United States Patent Office issued a patent on Milestone's
safety engineered needle technology to be issued to Milestone. When
commercialized, this new technology will be used with a plethora of infusion
devices, including the Company's CompuDent(TM) and CompuMed(TM) computer
controlled local anesthetic delivery systems as well as the CompuFlo(TM), an
enabling technology for computer controlled infusion, perfusion, suffusion and
aspiration of fluids. It provides features previously unavailable to medical and
dental practitioners; fully automated true single-handed activation with needle
anti-deflection and force-reduction capability. In addition, practitioners can
re-use this safety engineered device repeatedly during a single patient session
making it highly functional in a wide variety of medical and dental
applications.

OTHER MATTERS - AMERICAN STOCK EXCHANGE

On May 2, 2002, Milestone received a letter from the American Stock Exchange
advising that the Company have fallen below the stockholders' equity criterion
and requesting the submission of a recovery plan detailing any actions taken, or
planned to be taken within the next 18 months to bring the Company into
compliance. On June 10, 2002, the Company submitted a detailed recovery plan to
the American Stock Exchange showing how Milestone expects to achieve stockholder
equity of $4,000,000 by December 31, 2003. In response, the Company received
informal advice from the American Stock Exchange that in view of the expected
loss in 2002, Milestone needed to demonstrate how the Company will achieve
$6,000,000 in stockholders' equity by the end of 2003. On August 14, 2002, a
supplemental plan demonstrating how Milestone expects to meet these
requirements. On August 23, 2002, the American Stock Exchange advised the
Company that they had determined that the plan makes a reasonable demonstration
of Milestone's ability to regain compliance with the continued listing standards
by the conclusion of the plan period at the end of 2003. The continued listing
of Milestone's securities on the American Stock Exchange during this period will
be subject to periodic reviews by the Exchange. Failure to show progress
consistent with the plan or to regain compliance by the end of the plan period
could still result in the Milestone being delisted. In the event that
Milestone's securities are delisted from the American Stock Exchange, trading,
if any, in the common stock and warrants would be conducted in the over the
counter market in the so-called "pink sheets" or on the NASD's "OTC Bulletin
Board." Consequently the liquidity of the Company's securities could be
impaired, not only in the


                                       25
<PAGE>

number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysts and new media
coverage of Milestone, and lower prices for Milestone's securities than might
otherwise be obtained.


                                       26
<PAGE>

Item 7. Financial Statements

      The financial statements of Milestone required by this item are set forth
beginning on page F-1.

Item 8. Change in and Disagreements with Accountants on Accounting Financial
Disclosure

      Not applicable.


                                       27
<PAGE>

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act

      The current executive officers and directors of Milestone and their
respective ages as of March 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                                              Director
                   Name               Age                              Position                                Since
       ---------------------------------------------------------------------------------------------------------------
<S>                                    <C>   <C>                                                                <C>
       Leonard A. Osser                55    Chairman and Chief Executive Officer of Milestone and              1991
                                             President and Chief Executive Officer of Spintech, a
                                             subsidiary
       Stuart J. Wildhorn              45    Senior Vice President
       Thomas M. Stuckey               49    Chief Financial Officer and Vice President of Milestone and
                                             Chief Financial Officer of both Spintech and Sagacity I,
                                             each a subsidiary
       Paul Gregory (1)                65    Director of Milestone                                              1997
       Leonard M. Schiller(1)          61    Director of Milestone                                              1997
       Jeffrey Fuller(1)               57    Director of Milestone                                              2003
</TABLE>

----------
      (1) Member of the Compensation and the Audit Committees

      Leonard A. Osser has been Chief Executive Officer and a director of
Milestone since July 1991, and the President and Chief Executive Officer of
Spintech, a subsidiary of Milestone, since November, 1995. From July 1991 until
July 1997, he also served as President and Chief Financial Officer of Milestone.
From 1980 until the consummation of Milestone's public offering in November
1995, he had been engaged primarily as the principal owner and Chief Executive
of U.S. Asian Consulting Group, Inc., a New Jersey based provider of consulting
services in "work-out" and "turnaround" situations for publicly and privately
owned companies in financial difficulty.

      Stuart J. Wildhorn has been our Senior Vice President since April 2001.
During the prior 11 years, Mr. Wildhorn held progressive senior management
positions with Datex-Ohmeda, a leading manufacturer of anesthesia and patient
monitoring products.

      Thomas M. Stuckey has been Chief Financial Officer and Vice President of
Milestone and Chief Financial Officer of Spintech and Sagacity I, a subsidiary
of Milestone, since May 1998. Prior to joining Milestone, Mr. Stuckey had been
the Corporate Controller of PureTec, a plastic product manufacturer, for 13
years.

      Paul Gregory has been a director of Milestone since April 1997. Mr.
Gregory has been a business and insurance consultant at Innovative Programs
Associates Inc. and Paul Gregory Associates Inc. since January 1995 and January
1986, respectively, where he services, among other entities, foreign and
domestic insurance groups, law and accounting firms and international
corporations.

      Leonard M. Schiller has been a director of Milestone since April 1997. Mr.
Schiller has been a partner in the law firm of Schiller, Klein & McElroy, P.C.
since 1977 and has practiced law in the State of Illinois for over 25 years. He
is also President of The Dearborn Group, a residential property management and
real estate acquisition company.

      Jeffrey Fuller has been a director of Milestone since January 16, 2003.
Mr. Fuller is president and owner of two municipal water supply systems, Hudson
Valley Water Co and Lake Lenepe Water Co. and in addition has been an executive
recruiter since 1995, prior to that he was CEO of Nacoma Consolidated, a
publicly traded millwork company.

      All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.


                                       28
<PAGE>

      Milestone's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of Milestone,
reviews general policy matters relating to compensation and benefits of
employees of Milestone, and administers the issuance of stock options to
Milestone's officers, employees, directors and consultants. All compensation
arrangements between Milestone and its directors, officers and affiliates are
reviewed by the compensation committee, the majority of which is made up of
independent directors. The Audit Committee meets with management and Milestone's
independent auditors to determine the adequacy of internal controls and other
financial reporting matters. In July 2000, each independent board member was
granted 12,422 options at an exercise price of $1.61.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires Milestone's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of Milestone's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, directors and greater than ten percent (10%) stockholders are required
by SEC regulations to furnish Milestone with copies of all Section 16(a) forms
they file.

      To the best of Milestone's knowledge, based solely on review of the copies
of such forms furnished to Milestone, or written representations that no other
forms were required, Milestone believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) shareholders were complied with during 2002.

Item 10. Executive Compensation.

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 2002,
2001, and 2000 by (i) Milestone's Chief Executive Officer and (ii) the most
highly compensated executive officers, other than the CEO, who were serving as
executive officers at the end of the 2002 fiscal year and whose salary as
determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals
falling within categories (i) and (ii) are collectively referred to as the
"Named Executives").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                     Annual                     Awards
                                                                  Compensation               Common Stock
                       Name and                                      Salary               Underlying Options
                  Principal Position           Year                    ($)                       (#)
              ------------------------------------------------------------------------------------------------
<S>                                            <C>                  <C>                           <C>
              Leonard A. Osser                 2002                 351,800(1)                    50,000
                 Chief Executive               2001                 350,967(2)                    50,000
                 Officer and                   2000                 265,407(3)                    50,000
                 Chairman

              Stuart J. Wildhorn               2002                 155,400                        7,000
                 Senior Vice                   2001                  93,750                       50,000
                 President

              Thomas A. Stuckey                2002                 136,267(4)                     7,000
                 Chief Financial               2001                 116,905                       10,000
                 Officer and Vice              2000                 114,051                       25,000
                 President
</TABLE>

----------
(1)   Includes $320,000 in deferred compensation, of which $284,000 earned as
      Chairman and CEO of Milestone and $36,000 earned as President and CEO of
      Spintech. It excludes $19,049 paid by Milestone to Marilyn Elson, a
      certified public account, who was employed by Milestone to render
      professional tax services. Ms. Elson is the wife of Mr. Osser.

(2)   Includes $350,000 in deferred compensation, of which $314,000 earned as
      Chairman and CEO of Milestone and $36,000 earned as President and CEO of
      Spintech. The deferred compensation was paid subsequent to year end


                                       29
<PAGE>

      through the issuance of 625,000 units, each consisting of one share and
      one six-year warrant to purchase one share at prices ranging from
      $.80-$2.00. It excludes $20,850 paid by Milestone to Marilyn Elson.

(3)   Includes $141,346 in deferred compensation and $21,000 earned as President
      and Chief Executive Officer of Spintech. The deferred compensation was
      paid subsequent to year end through the issuance of 176,683 units, each
      consisting of one share and one six-year warrant to purchase one share at
      prices ranging from $.80-$2.00.Reflects voluntary reduction of base
      salary, which commenced in July 1998 and also includes $36,000 earned as
      President and Chief Executive Officer of Spintech.

(4)   Includes a $20,000 bonus paid in 2002.

                                   ----------

Stock Options

The following tables show certain information with respect to incentive and
non-qualified stock options granted in 2002 to Named Executives under
Milestone's 1997 Stock Option Plan and the aggregate value at March 18, 2002 of
such options. In general, the per share exercise price of all options is equal
to the fair market value of a share of Common Stock on the date of grant. No
options granted to Named Executives have been exercised.

                              Option Grants in 2002

Individual Grants of Options

<TABLE>
<CAPTION>
                                                     Percent of Total
                                 Number of            Options Granted
                             Shares of Common               to
                             Stock Underlying          Employees in        Exercise Price
       Name                      Option #                  2002                ($/Sh)             Expiration Date
<S>                             <C>                        <C>                 <C>                    <C>
Leonard A. Osser                50,000(1)                  28.9%               $  .55                 01-01-07
Stuart J. Wildhorn               7,000(2)                   4.0%               $  .75                 07-27-07
Thomas M. Stuckey                7,000(2)                   4.0%               $  .75                 07-27-07
</TABLE>

----------
(1)   Options vest 01-01-03

(2)   One third vested when issued and one third vesting on each of the next two
      anniversaries.

                     Aggregated 2002 Year End Options Values
                  for Options Granted Prior to and During 2002

<TABLE>
<CAPTION>
                                              Number of Shares of Common       Value of Unexercised
                                             Stock Underlying Unexercised      In-The-Money Options
                                                 Options at12-31-2002            At 12-31-2002(1)
                                                     Exercisable/                  Exercisable/
                         Name                       Unexercisable                  Unexercisable
             ------------------------------------------------------------------------------------------
<S>                                                <C>                               <C>
             Leonard A. Osser                        0 // 200,000                    $0 // $0
             Stuart J. Wildhorn                    19,000 // 38,000                  $0 // $0
             Thomas M. Stuckey                     71,667 // 16,333                  $0 // $0
</TABLE>

----------
(1)   Based on the closing price on March 29, 2003 of $.20 as quoted on the
      American Stock Exchange.

Employment Contracts

As of January 1, 1998 Milestone entered into an Employment Agreement with Mr.
Osser, which provides for an initial term expiring on December 31, 2002, with a
two-year non-competition period at the end of the term. The term is
automatically increased for successive one-year periods unless prior to December
1 of any year either party notifies the


                                       30
<PAGE>

other of its election not to extend the term. Under the Agreement Mr. Osser
serves as Chief Executive Officer and is required to work on a full-time basis.
Under the Agreement Mr. Osser receives annual base pay of $350,000, increasing
to reflect cost of living adjustments commencing on January 1, 2001. In
addition, during January 1998 and each of the next four Januarys Milestone shall
grant Mr. Osser an option to purchase 50,000 shares of Common Stock exercisable
only during the last 30 days of the five-year option term unless Milestone
achieves certain financial goals to be specified annually by the Compensation
Committee. Additionally, as soon as financial statements for each year
commencing with 1998 are completed, Milestone shall grant the executive an
additional option to purchase up to 50,000 shares depending upon the achievement
of specified performance goals. Further, Mr. Osser shall receive the opportunity
to earn cash bonuses of up to $200,000 per year depending upon the achievement
of performance targets to be specified by the Option Committee.

      On July 7, 1998, at his sole discretion, Mr. Osser implemented a voluntary
reduction of his annual base salary, reducing his annual base pay from $350,000
to $188,462. The voluntary reduction has been described by Mr. Osser as being
both temporary and having no effect upon his rights under his employment
agreement with Milestone. Such reduction remained in effect until August 5,
2000. At that time, Mr. Osser began to defer his salary at the $350,000 annual
base. At December 31, 2000, his deferred compensation was $141,346. In December
2001, Milestone reached an agreement with Mr. Osser to satisfy the $491,346 of
unpaid salary. The agreement calls for the issuance of 614,183 units. Each unit
consists of one share of Milestone common stock and one warrant to purchase an
additional share of such common stock. The warrants will be exercisable at $.80
per share through January 31, 2003, therefore at $1.00 per share through January
31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which
time they will expire. On March 31, 2003, Mr. Osser signed an agreement
deferring $640,000 of his annual salary until April 1, 2004.

Compensation of Directors

      Non-employee directors were granted a five-year option to purchase 20,000
shares of our Common Stock at an exercise price of $.50 which is higher than the
fair market value of a share of Common Stock on the date of grant. They receive
no cash compensation.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table, together with the accompanying footnotes, sets forth
information, as of March 29, 2003, regarding stock ownership of all persons
known by Milestone to own beneficially more than 5% of Milestone's outstanding
Common Stock, certain executive officers, all directors, and all directors and
officers of Milestone as a group:

<TABLE>
<CAPTION>
                                                                     Shares of
                                                                   Common Stock
                                                                   Beneficially       Percentage of
           Name of Beneficial Owner (1)                              Owned (2)          Ownership
           ----------------------------------------------------------------------------------------
<S>                                                                <C>                     <C>
           Executive Officers and Directors
           Leonard Osser ...................................       3,515,141(3)            26.4%
           Stuart J. Wildhorn...............................          21,334(4)              *
           Thomas M. Stuckey................................          77,300(5)              *
           Paul Gregory.....................................          32,572(6)              *
           Leonard M. Schiller..............................          53,016(7)              *
           Jeffrey Fuller...................................          20,000(8)              *
           All Directors & Officers as a group..............       3,719,363(9)            27.3%
</TABLE>

----------
*     Less than 1%


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                  Shares of
                                                                Common Stock
                                                                Beneficially             Percentage of
              5% and Greater Stockholders                         Owned (2)                Ownership
              ----------------------------------------------------------------------------------------
<S>                                                              <C>                         <C>
              K. Tucker Andersen
                    c/o Cumberland Associates LLC
                    1114 Avenue of the Americas
                    New York, New York 10036                      1,646,439(9)               13.03%

              Cumberland Associates, LLC
                    1114 Avenue of the Americas
                    New York, New York 10036                     1,171,672(10)                9.27%

              Gintel Asset Management, Inc.
                    6 Greenwich Office Park
                    Greenwich, CT 06831                          1,347,000(11)               10.66%
</TABLE>

(1)   The addresses of the persons named in this table are as follows: Leonard
      A. Osser, 220 South Orange Avenue, Livingston Corporate Park, Livingston,
      NJ 07039; Thomas M. Stuckey, 220 South Orange Avenue, Livingston Corporate
      Park, Livingston, NJ 07039; Paul Gregory, Innovative Programs Associates
      Inc., 370 E. 76th Street, New York, New York 10021; Leonard M. Schiller,
      Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite 1030,
      Chicago, Illinois 60602 and Mr. Jeffrey Fuller, Eagle Chase, Woodbury, NY
      11797.

(2)   A person is deemed to be a beneficial owner of securities that can be
      acquired by such person within 60 days from the filing of this proxy
      statement upon the exercise of options and warrants or conversion of
      convertible securities. Each beneficial owner's percentage ownership is
      determined by assuming that options, warrants and convertible securities
      that are held by such person (but not held by any other person) and that
      are exercisable or convertible within 60 days from the filing of this
      report have been exercise or converted. Except as otherwise indicated, and
      subject to applicable community property and similar laws, each of the
      persons named has sole voting and investment power with respect to the
      shares shown as beneficially owned. All percentages are determined based
      on the number of all shares, including those underlying options
      exercisable within 60 days from the filing of this proxy statement held by
      the named individual, divided by 12,633,370 outstanding shares on March
      31, 2003 and those shares underlying options exercisable within 60 days
      from the filing of this proxy statement, held by the named individual.

(3)   Includes (i) 614,183 shares issuable upon exercise of stock options within
      60 days of the date hereof, which are exercisable at $.80 and (ii)
      warrants immediately exercisable to purchase 35,714 shares at $1.75 per
      share.

(4)   Includes 16,667 shares subject to stock options, exercisable within 60
      days of the date hereof at $2.50 per share and 4,667 shares subject to
      stock options, exercisable within 60 days of the date hereof at $.75 per
      share.

(5)   Includes 21,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $3.00 per share, 25,000 shares subject to stock
      options, exercisable within 60 days of the date hereof at $16.50 per
      share, and 16,667 shares subject to stock options, exercisable within 60
      days of the date hereof at $2.1875 per share, 6,667 shares subject to
      stock options exercisable within 60 days of the date hereof at $2.50 per
      share and 4,666 shares subject to stock options exercisable within 60 days
      of the date hereof at $.75 per share. Mr. Stuckey disclaims beneficial
      ownership of (i) 10,000 shares, which are held by his wife as custodian
      for their children, and (ii) 1,700 shares which are owned by his wife in
      her IRA.

(6)   Includes 150 shares held by Mr. Gregory's wife, 12,422 shares subject to
      stock options, exercisable within 60 days of the date hereof at $2.1875
      per share and 20,000 subject to stock options, exercisable within 60 days
      of the date hereof at $.50 per share.

(7)   Includes 12,422 shares subject to stock options, exercisable within 60
      days of the date hereof at $2.1875 per share and 20,000 subject to stock
      options, exercisable within 60 days of the date hereof at $.50 per share.

(8)   Includes 20,000 shares subject to stock options, exercisable within 60
      days of the date hereof @$ .50 per share.

(9)   Includes 734,361 shares subject to stock options and 35,714 shares subject
      to warrants all of which are exercisable within sixty (60) days of the
      date hereof.

(10)  Based solely upon an amendment to Schedule 13G filed by K. Tucker Andersen
      with the Securities and Exchange Commission on 12/7/01 and the 33,840
      shares issued to Mr. Andersen in January 2002 in lieu of interest.

(11)  Based solely upon an amendment to Schedule 13G filed by Cumberland
      Associates, LLC with the Securities and Exchange Commission on 2-14-03.

(12)  Includes 555,000 shares held by Gintel Asset Management and 792,000 shares
      held by Robert Gintel Florida Intangible Tax Trust. Excludes 110,000
      shares owned by Barbara Gintel (Robert Gintel's spouse) and 150,000 shares
      owned by Gintel Partners Fund.


                                       32
<PAGE>

                      Equity Compensation Plan Information

      The following table summarizes the (i) options granted under the Milestone
1997 Stock Option Plan, and (ii) options and warrants granted outside the
Milestone 1997 Stock Option Plan, as of December 31, 2001. The shares covered by
outstanding options and warrants are subject to adjustment for changes in
capitalization stock splits, stock dividends and similar events. No other equity
compensation has been issued.

<TABLE>
<CAPTION>
                                                                       Equity Compensation Plan Table
                                              -------------------------------------------------------------------------------
                                                     Number of                                        Number of securities(1)
                                                securities(1) to be          Weighted-average         remaining available for
                                              issued upon exercise of        exercise price of             future issuance
                                                outstanding options,       outstanding options,              under equity
                                                warrants and rights         warrants and rights          compensation plans
                                              -------------------------------------------------------------------------------
<S>                                                    <C>                         <C>                      <C>
Equity Compensation Plans Approved By
Security Holders

Grants under the Milestone Scientific,  Inc.
1997 Stock Option Plan .....................             741,844                   $4.08                       258,156

Equity Compensation Plans Not Requiring
Approval By Security Holders

Aggregate Individual Option Grants .........             513,500                   $3.91                    Not applicable

Aggregate Individual Warrant Grants ........           1,004,816                   $1.45                    Not applicable
-----------------------------------------------------------------------------------------------------------------------------

             Total .........................           2,260,160                   $2.87
                                              -------------------------------------------------------------------------------
</TABLE>

      (1) Reflect shares of Milestone Common Stock.

The aggregate individual option grants outside the Stock Option Plan referred to
in the table above include options granted to consultants and providers of
certain services to the company. The aggregate individual warrant grants
referred to in the table above include warrants granted to investors in the
company as part of private placements and credit line arrangement.

Item 12. Certain Relationships and Related Transactions

     Pursuant to a $1 million private placement which was completed in February
2000, Leonard Osser, the Chairman and Chief Executive Officer of Milestone,
purchased $250,000 principal amount of 10% secured promissory notes and
five-year warrants to purchase 35,714 shares of Milestone's Common Stock,
immediately exercisable at $1.75 per share with such exercise price increasing
each anniversary to a final exercise price of $7.00 per share. In March 2001,
the exercise price of these warrants was amended by agreement between Milestone
and the warrant holders to provide for an exercise price of $1.75 per share up
to the date of maturity. Additionally, pursuant to an agreement made as of
January 31, 1999, Milestone issued 1,800,000 shares of Common Stock in full
payment of Milestone's three percent Senior Convertible Promissory Notes in the
aggregate principal amount of $2,250,000, of which 200,000 shares were issued to
Leonard Osser, Chairman and Chief Executive Officer. In April 2000, Mr. Osser
provided Milestone with a $200,000 line of credit which is payable on January 2,
2003. In December 2001, the Company reached an agreement with Mr. Osser to
satisfy $491,346 of his deferred compensation through the issuance of 614,183
units, each unit


                                       33
<PAGE>

consisted of one share of Milestone common stock and one warrant to purchase an
additional share of each stock. These units were issued to Mr. Osser in January
2002.

      Morse, Zelnick, Rose and Lander, LLP, legal counsel to Milestone and the
firm in which Steve Zelnick, General Counsel and former director to Milestone,
is Partner, is the holder of warrants to purchase 118,000 shares of Common Stock
and warrants to purchase 83,333 units, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common Stock. On February
3, 2000, Milestone reduced the exercise price of these warrants to $1.25 and
extended their exercise period to February 2, 2002. Milestone paid $137,500 and
$72,500 during the years ended December 31, 2002 and December 31, 2001,
respectively, to the same law firm noted above. The law firm and Mr. Zelnick
also participated in the February 2001 private placement, each purchasing
$50,000 of 10% Senior Secured Promissory Notes and warrants to purchase 7,143
shares of Milestone Common Stock. As of December 31, 2002, outstanding payables
due to the law firm was $389,181.


                                       34
<PAGE>

      Item 13. Exhibits and Reports on Form 8-K

      (a) Certain of the following exhibits were filed as Exhibits to the
registration statement on form SB-2, Registration No. 33-92324 and amendments
thereto (the "Registration Statement") filed by the Registrant under the
Securities Act of 1933, as amended, or the reports filed under the Securities
and Exchange Act of 1934, as amended, and are hereby incorporated by reference.

           Exhibit
             No.                      Description
           -------                    -----------
            3.1     Certificate of Incorporation of Milestone. (1)

            3.2     Certificate of Amendment filed July 13, 1995. (2)

            3.3     Certificate of Amendment filed October 31, 1996. (3)

            3.4     Certificate of Amendment filed December 11, 1997. (6)

            3.5     By-laws of Milestone. (1)

            4.1     Specimen Stock Certificate. (2)

            4.2     Form of Purchase Agreement dated January 31, 2000 (4)

            4.3     Form of Registration Rights Agreement dated January 31, 2000
                    (4)

            4.4     Form of Security Agreement dated January 31, 2000 (4)

            4.5     Form of Agreement to convert 3% Senior convertible notes
                    dated January 31, 2000 (4)

            4.6     Form of Warrant dated January 31, 2000 (4)

            4.7     Form of 10% Senior Promissory Note dated January 31, 2000
                    (4)

            4.8     $200,000 8% Secured Promissory Note dated July 31, 2000 (4)

            4.9     $300,000 8% Secured Promissory Note dated July 31, 2000 (4)

            4.10    Warrant dated July 31, 2000 (4)

            4.11    20% Secured Promissory Notes to Longview Partners A, L.P.
                    and Cumberland Benchmarked Partners, L.P. each dated August
                    28, 2000 (4)

            4.12    Purchase and Line of Credit Agreement dated July 31, 2000
                    (4)

            4.13    Purchase Agreement dated August 25, 2000 (4)

            4.14    Private Equity Line of Credit Agreement between Milestone
                    and Hillgreen Investments Limited dated January 22, 2001.
                    (5)

            4.15    Registration Rights Agreement, dated January 22, 2001,
                    between Milestone and Hillgreen Investments Limited. (5)

            4.16    Escrow Agreement dated as of January 22, 2001, among
                    Milestone, Hillgreen Investments Limited and Epstein Becker
                    & Green, P.C. (5)

            4.17    Line of Credit Agreement dated March 9, 2001.(7)

            4.18    Form of 10% Promissory Note, dated March 9, 2001.(7)

            4.19    Registration Rights Agreement dated March 9, 2001.(7)

            4.20    Amendment to Purchase Agreement Dated January 31, 2000,
                    dated March 16, 2001.(7)

            4.21    Form of Senior Secured Promissory Note, dated March 16,
                    2001.(7)

            4.22    Form of revised 20% Secured Promissory Notes to Longview
                    Partners A, L.P. and Cumberland Benchmarked Partners, L.P.
                    dated August 28, 2000 (7)

            4.23    Letter Agreement among Milestone, Cumberland Benchmarked
                    Partners, L.P. and Longview Partners A, L.P., dated March
                    23, 2001 (7)

            4.24    Letter Agreement, dated March 27, 2001, regarding the sale
                    of 500,000 shares of Milestone's Common Stock. (7)

            4.25    Amendment to Line of Credit Agreement between Milestone and
                    K. Tucker Andersen from March 9, 2001, dated July 30,
                    2001(8).

            4.26    Purchase Agreement between Milestone and K. Tucker Anderson
                    dated October 4, 2001(26).

            4.27    Form of 10% Convertible Promissory Note dated October 4,
                    2001(8).

            4.28    Letter Agreement dated December 12, 2001, regarding the
                    issuance of 325,000 units to K. Tucker Andersen(8).

            4.29    Warrant to purchase 325,000 shares of Milestone(8).

            4.30    Letter Agreement between Milestone and K. Tucker Andersen
                    dated December 28, 2001 regarding the issuance to Andersen
                    of 33,840 units(8).

            4.31    Warrant to purchase 33,840 shares of Milestone(8).


                                       35
<PAGE>

            4.32    Letter dated December 28, 2001 re issuance of units to
                    Leonard Osser in lieu of deferred compensation(8).

            4.33    Warrant to purchase 614,183 shares dated December 28,
                    2001(8).

            4.34    Purchase Agreement with K. Tucker Andersen dated February
                    19, 2002(8).

            4.35

            4.36    Letter dated March 28, 2002 regarding the issuance of
                    187,500 units to Design Centre Incorporated(8).

            4.37    Letter from Leonard Osser dated March 29, 2002, re deferral
                    of payment on 9% Promissory Secured Note issued in April
                    2000(8).

            4.38    Second Amendment of Purchase Agreement dated January 31,
                    2000, dated April 15, 2002(8).

            4.39    Amendment of Purchase Agreement dated August 25, 2000, dated
                    April 15, 2002(8).

            4.40    Amendment to 1. 10% Promissory Note dated March 9, 2001; 2.
                    8% Senior Secured Promissory Notes dated July 25, 2000; 3.
                    8% Senior Secured Promissory Note Note dated February 19,
                    2002, with K. tucker Andersen, dated April 15, 2002(8).

            4.41    Letter re Line of Credit Agreement with K. Tucker Andersen,
                    dated April 15, 2002(8).

            4.42    Line of Credit Agreement with Len Osser, dated April 15,
                    2002(8).

            4.43    Form of 8%/10% Promissory Notes issued on the following
                    dates and amounts: February 19, 2002 for $150,000; May 28,
                    2002 for $250,000; August 17, 2002 for $85,000; November 15,
                    2002 for $200,000 and February 13, 2003 for $200,000.

            10.1    Lease dated November 25, 1996 between Livingston Corporate
                    Park Associates, L.L.C. and Milestone. (3)

            10.2    Form of Underwriter's Warrant. (2)

            10.5    Lease, as amended, dated November 6, 1991, between Raybec
                    Management Co. and Wisdom. (3)

            10.8    Agreement for The Wand(R)Product dated December 1, 1996,
                    between Spintech and Princeton PMC. (3)

            10.10   Agreement between Milestone and Spintech dated December 21,
                    1994, and Amendment No. 1 thereto. (2)

            10.11   Employment Agreement between Milestone and Leonard Osser
                    dated January 1, 1998. (6)

            10.12   Undertaking of Leonard Osser dated April 5, 2000. (6)

            10.13   Purchase and Line of Credit Agreement dated July 31, 2000
                    (4)

            10.14   Purchase Agreement dated August 25, 2000 (4)

            10.15   Private Equity Line of Credit Agreement between Milestone
                    and Hillgreen Investments Limited dated January 22, 2001.
                    (5)

            10.16   Registration Rights Agreement, dated January 22, 2001,
                    between Registrant and Hillgreen Investments Limited. (5)

            10.17   Escrow Agreement dated as of January 22, 2001, among
                    Registrant, Hillgreen Investments Limited and Epstein Becker
                    & Green, P.C. (5)

            10.18   Line of Credit Agreement dated March 9, 2001 (provided as
                    Exhibit 4.19).

            10.19   Registration Rights Agreement dated March 9, 2001 (provided
                    as Exhibit 4.21).

            10.20   Amendment to Purchase Agreement dated January 31, 2000,
                    dated March 16, 2001 (provided as Exhibit 4.22).

            10.21   Letter Agreement, dated March 27, 2001, regarding the sale
                    of 500,000 shares of Common Stock (provided as Exhibit
                    4.26).

            10.22   Agreement among Milestone, News USA, Inc. and Vested Media
                    Partners, Inc., dated March 22, 2001.(7)

            10.23   Letter from Leonard Osser and Morse, Zelnick, Rose & Lander,
                    LLP, dated April 9, 2000.(7)


                                       36
<PAGE>

            10.24   Letter from Leonard Osser, dated March 29, 2002 deferring
                    compensation payment.

            10.25   Letter from Morse, Zelnick, Rose & Lander LLP, dated March
                    29, 2002, re deferral of payment.

            10.26   Letter from Leonard Osser, dated April 15, 2003 deferring
                    payment.

            10.27   Letter from Morse, Zelnick, Rose & Lander LLP deferring
                    payment.

            10.28   Line of Credit for 900,000 and extension of 500,000 line of
                    credit, dated April 15, 2003.

            21.1    Subsidiaries of the Registrant. (3)

            23.1    Consent of J. H. Cohn, LLP

(2)   Incorporated by reference to Milestone's Registration Statement on Form
      SB-2 No. 333-92324.

(3)   Incorporated by reference to Amendment No. 1 to Milestone's Registration
      Statement on Form SB-2 No. 333-92324.

(4)   Incorporated by reference to Milestone's Form 10-KSB for the year ended
      December 31, 1996.

(5)   Incorporated by reference to Milestone's Registration Statement on Form
      S-3 No. 333-39784.

(6)   Incorporated by reference to Milestone's Registration Statement on Form
      S-2 No. 333-54732.

(6)   Incorporated by reference to Milestone's Form 10-KSB for the year ended
      December 31, 1999.

(7)   Incorporated by reference to Milestone's Form 10-KSB for the year ended
      December 31, 2000.

(8)   Incorporated by reference to Milestone's Form 10-KSB for the year ended
      December 31, 2001.

(b)   There were no reports on Form 8-K filed by the Registrant during the last
      quarter of the period covered by this report.

Item 14.          Control and Procedures

      (a)   Evaluation of disclosures. We maintain disclosure controls and
            procedures designed to provide reasonable assurance that information
            required to be disclosed in the reports we file with the SEC is
            recorded, processed, summarized and reported within the time periods
            specified in the rules of the SEC. Within 90 days prior to the
            filing of this Report on Form 10-KSB, we carried out an evaluation,
            under the supervision and participation of our management, including
            our Chief Executive Officer and Chief Financial Officer, of the
            design and operation of this disclosure controls and procedures
            pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
            our Chief Executive Officer and Chief Financial Officer concluded
            that our disclosure controls and procedures are effective in timely
            alerting them to material information relating to the Company
            (including our consolidated subsidiaries) required to be included in
            our periodic SEC filings.

      (b)   Changes in internal controls. There were no significant changes in
            internal controls or other factors that could significantly affect
            our internal controls subsequent to the date of our evaluation.


                                       37
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            Milestone Scientific Inc.


                                            By: /s/ Leonard Osser
                                            -------------------------------
                                            Chairman and Chief Executive Officer
Date: April 15, 2002

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on April
15, 2002.

<TABLE>
<CAPTION>
                Signature                  Date                                Title
<S>                                   <C>                   <C>
          /s/ Leonard Osser           April 15, 2003           Chairman, and Chief Executive Officer
          ------------------------
              Leonard Osser

          /s/ Thomas M. Stuckey       April 15, 2003        Vice President and Chief Financial Officer
          ------------------------
              Thomas M. Stuckey

          /s/ Leonard Schiller        April 15, 2003                         Director
          ------------------------
              Leonard Schiller

          /s/ Paul Gregory            April 15, 2003                         Director
          ------------------------
              Paul Gregory

          /s/ Jeffrey Fuller          April 15, 2003                         Director
          ------------------------
              Jeffrey Fuller
</TABLE>


                                       38
<PAGE>

                                  CERTIFICATION

I, Leonard Osser, certify that:

      1.    I have reviewed this annual report on Form 10-KSB of Milestone
            Scientific, Inc. ("the registrant").

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant`s other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

                  a)    Designed such disclosure controls and procedures to
                        ensure that material information relating to the
                        registrant, including its consolidated subsidiary, is
                        made known to us by others within those entities,
                        particularly during the period in which this annual
                        report is being prepared;

                  b)    Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures as of a date within
                        90 days prior to the filing date of this annual report
                        (the "Evaluation Date"); and

                  c)    Presented in this annual report our conclusions about
                        the effectiveness of the disclosure controls and
                        procedures based on our evaluation as of the Evaluation
                        Date:

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

                  a)    All significant deficiencies in the design or operation
                        of internal controls which could adversely affect the
                        registrant's ability to record, process, summarize and
                        report financial data and have identified for the
                        registrant's auditors any material weaknesses in
                        internal controls; and

                  b)    Any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal controls; and

      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether or not there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

      Date: April 15, 2003                          /s/ Leonard Osser
                                                        ---------------
                                                        Leonard Osser
<PAGE>

                                  CERTIFICATION

I, Thomas M. Stuckey, certify that:

      1.    I have reviewed this annual report on Form 10-KSB of Milestone
            Scientific, Inc. ("the registrant").

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant`s other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

                  a.    Designed such disclosure controls and procedures to
                        ensure that material information relating to the
                        registrant, including its consolidated subsidiary, is
                        made known to us by others within those entities,
                        particularly during the period in which this annual
                        report is being prepared;

                  b.    Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures as of a date within
                        90 days prior to the filing date of this annual report
                        (the "Evaluation Date"); and

                  c.    Presented in this annual report our conclusions about
                        the effectiveness of the disclosure controls and
                        procedures based on our evaluation as of the Evaluation
                        Date:

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

                  a.    All significant deficiencies in the design or operation
                        of internal controls which could adversely affect the
                        registrant's ability to record, process, summarize and
                        report financial data and have identified for the
                        registrant's auditors any material weaknesses in
                        internal controls; and

                  b.    Any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal controls; and

      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether or not there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: April 15, 2003                                  /s/ Thomas M. Stuckey
                                                      ---------------------
                                                      Thomas M. Stuckey
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Milestone Scientific, Inc.

We have audited the accompanying consolidated balance sheet of MILESTONE
SCIENTIFIC, INC. AND SUBSIDIARIES as of December 31, 2002, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years ended December 31, 2002 and 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Milestone
Scientific, Inc. and Subsidiaries as of December 31, 2002, and their results of
operations and cash flows for the years ended December 31, 2002 and 2001, in
conformity with accounting principles generally accepted in the United States of
America.


                                                        J.H. Cohn LLP

Roseland, New Jersey
April 1, 2003, except for Notes B and H
   which are as of April 15, 2003


                                      F-1
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET
                              AT DECEMBER 31, 2002

<TABLE>
<S>                                                                                  <C>
ASSETS
CURRENT ASSETS:
         Cash                                                                        $      9,683
         Accounts receivable, net of allowance for doubtful accounts of $46,152           239,435
         Inventories                                                                      119,291
         Advances to contract manufacturer                                                300,000
         Deferred debt financing, net                                                     159.877
         Prepaid expenses                                                                  64,952
                                                                                     ------------
                Total current assets                                                      893,238
EQUIPMENT, net                                                                            227,207
ADVANCES TO CONTRACT MANUFACTURER -- Long term                                             87,935
OTHER ASSETS                                                                               32,333
                                                                                     ------------
                Total                                                                $  1,240,713
                                                                                     ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
         Account payable, including $32,000 to related parties                       $  1,269,523
         Accrued expenses                                                                  86,492
         Accrued interest                                                                 169,519
         Notes payable                                                                  4,581,708
                                                                                     ------------
                Total current liabilities                                               6,107,242
Accrued interest                                                                          139,323
Deferred compensation payable to officer/stockholder                                      320,000
Notes payable                                                                             480,091
Notes payable -- officer/stockholder                                                      300,000
                                                                                     ------------
                Total liabilities                                                       7,346,656
                                                                                     ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
         Common stock, par value $.001; authorized,
                 25,000,000 shares; 12,733,370 shares issued                               12,733
         Additional paid-in capital                                                    36,599,607
         Accumulated deficit                                                          (41,786,767)
         Unearned compensation                                                            (20,000)
         Treasury stock, at cost, 100,000 shares                                         (911,516)
                                                                                     ------------
                Total stockholders' deficiency                                         (6,105,943)
                                                                                     ------------
                Total                                                                $  1,240,713
                                                                                     ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-2
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year Ended December 31,

<TABLE>
<CAPTION>
                                                                     2002               2001
                                                                 ------------       ------------
<S>                                                              <C>                <C>
Revenues                                                         $  4,074,006       $  4,093,710
Cost of Sales                                                       1,980,949          1,973,156
                                                                 ------------       ------------

Gross profit                                                        2,093,057          2,120,554
                                                                 ------------       ------------

Selling, general and administrative expenses                        3,588,836          5,271,032
Research and development expenses                                     147,709             49,943
Closing of Deerfield, IL facility                                      26,067                 --
                                                                 ------------       ------------
TOTALS                                                              3,762,612          5,320,975
                                                                 ------------       ------------
Loss from operations                                               (1,669,555)        (3,200,421)
Interest income                                                            --              2,936
Interest expense                                                     (850,642)          (858,582)
Sale of prophy angle business and related consulting income            80,000             64,487
                                                                 ------------       ------------

NET LOSS                                                         $ (2,440,197)      $ (3,991,580)
                                                                 ============       ============

Loss per common share -- basic and diluted                       $       (.20)      $       (.36)
                                                                 ============       ============

Weighted-average shares outstanding -- basic and diluted           12,469,673         11,142,590
                                                                 ============       ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                    Common Stock                Additional
                                                                                 Paid in           Accumulated          Unearned
                                               Shares          Amount            Capital              Deficit          Advertising
                                               ------          ------            -------           -----------         -----------
<S>                                          <C>               <C>              <C>                <C>                 <C>
Balance, January 1, 2001                     10,752,898        $10,753          $34,584,473        $(35,354,990)       $        --
Warrants issued with draw-
down on credit facility                                                              23,400
Common stock issued for
consideration for payment
of accrued interest                              27,641             28               36,251
Warrants issued pursuant to
a $500,000 line of credit                                                            40,000
Common stock issued for
services rendered                                92,308             92              149,908
Warrants issued for
unearned advertising fees                                                           324,218                               (324,218)
Proceeds from sale of
common stock, net of
expenses                                        500,000            500              491,500
Warrants issued to
consultants                                                                         100,000
Stock options issued for
services rendered                                                                    97,649
Amortization of unearned
advertising expense                                                                                                         21,398
Amortization of deferred
compensation
Proceeds from sale of
common stock yet to be issued,
net of expenses                                                                     243,167
Net loss                                                                                             (3,991,580)
                                             ---------------------------------------------------------------------------------------
Balance, December 31, 2001                   11,372,847         11,373           36,090,566         (39,346,570)          (302,820)
                                             ---------------------------------------------------------------------------------------
Common stock issued from the
sale of common stock in 2001                    325,000            325                 (325)
Common stock issued for accrued
interest                                         33,840             34               27,038
Common stock issued for deferred
compensation                                    614,183            614              490,732
Common stock issued for payment of
accounts payable                                187,500            187              149,813
Amortization of unearned
advertising expense                                                                                                         24,803
Expired warrants for
unearned advertising                                                               (278,017)                               278,017
Stock options issued for
future services                                                                      30,000
Common stock issued for payment of
accounts payable                                200,000            200               89,800
Net loss                                                                                             (2,440,197)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                   12,733,370        $12,733          $36,599,607        $(41,786,767)       $        --
====================================================================================================================================

<CAPTION>
                                              Deferred            Unearned          Treasury
                                            Compensation        Compensation          Stock           Total
                                            ------------        ------------        ---------         -----
<S>                                         <C>                   <C>               <C>             <C>
Balance, January 1, 2001                    $    (31,055)         $      --         $(911,516)      $(1,702,335)
Warrants issued with draw-
down on credit facility                                                                                  23,400
Common stock issued for
consideration for payment
of accrued interest                                                                                      36,279
Warrants issued pursuant to
a $500,000 line of credit                                                                                40,000
Common stock issued for
services rendered                                                                                       150,000
Warrants issued for
unearned advertising fees                                                                                     0
Proceeds from sale of
common stock, net of
expenses                                                                                                492,000
Warrants issued to
consultants                                                                                             100,000
Stock options issued for
services rendered                                                                                        97,649
Amortization of unearned
advertising expense                                                                                      21,398
Amortization of deferred
compensation                                       31,055                                                31,055
Proceeds from sale of
common stock yet to be issued,
net of expenses                                                                                         243,167
Net loss                                                                                             (3,991,580)
                                            -------------------------------------------------------------------
Balance, December 31, 2001                             --                --          (911,516)       (4,458,967)
                                            -------------------------------------------------------------------
Common stock issued from the
sale of common stock in 2001
Common stock issued for accrued
interest                                                                                                 27,072
Common stock issued for deferred
compensation                                                                                            491,346
Common stock issued for payment of
accounts payable                                                                                        150,000
Amortization of unearned
advertising expense                                                                                      24,803
Expired warrants for
unearned advertising                                                                                          0
Stock options issued for
future services                                                     (20,000)                             10,000
Common stock issued for payment of
accounts payable                                                                                         90,000
Net loss                                                                                             (2,440,197)
---------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                  $         --          $ (20,000)        $(911,516)      $(6,105,943)
===============================================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year Ended December 31,

<TABLE>
<CAPTION>
                                                                               2002              2001
                                                                           -----------       -----------
<S>                                                                        <C>               <C>
Cash flows from operating activities:

Net loss                                                                   $(2,440,197)      $(3,991,580)
Adjustments to reconcile net loss to net cash used in
operating activities:
       Depreciation                                                             53,052            75,990
       Amortization of unearned advertising cost                                24,803            21,398
       Amortization of debt discount and deferred financing costs              340,133           306,734
       Common stock issued for services                                             --           150,000
       Amortization of deferred compensation                                        --            31,055
       Stock options and warrants issued to consultants                         10,000           197,649
       Loss on disposal of fixed asset                                           1,909                --
       Changes in operating assets and liabilities:
           Decrease in accounts receivable                                     124,308           165,801
           Decrease in inventories                                              43,349            13,533
           Decrease in advances to contract manufacturer                       301,594           315,000
           (Increase) decrease in prepaid expenses                             (33,967)          121,727
           Decrease in other assets                                            (19,971)           (2,044)
           Increase in accounts payable                                        107,220           253,776
           Increase in accrued interest                                        510,508           551,847
           Increase (decrease) in accrued expenses                             (18,918)           54,178
           Increase in deferred compensation                                   320,000           350,000
                                                                           -----------       -----------
       Net cash used in operating activities:                                 (676,177)       (1,384,936)
                                                                           -----------       -----------
Cash flows from investing activities-payment for capital expenditures          (74,344)          (10,672)
                                                                           -----------       -----------

Cash flows from financing activities:
       Proceeds from sale of common stock, net of expenses                          --           492,000
       Proceeds from note payable -- officer/stockholder                       100,000                --
       Proceeds from line of credit                                                 --           500,000
       Proceeds from issuance of notes payable                                 685,000           100,000
       Proceeds from the sale of common stock yet to be issued                      --           243,167
       Payments for deferred financing costs                                   (40,538)          (96,684)
                                                                           -----------       -----------
       Net cash provided by financing activities                               744,462         1,238,483
                                                                           -----------       -----------

       NET DECREASE IN CASH                                                     (6,059)         (157,125)
Cash at beginning of year                                                       15,742           172,867
                                                                           -----------       -----------
Cash at end of year                                                        $     9,683       $    15,742
                                                                           ===========       ===========

Supplemental disclosures of cash flow information:
       Cash paid during the year for interest                              $         0       $         0
                                                                           ===========       ===========
       Cash paid during the year for taxes                                 $         0       $         0
                                                                           ===========       ===========
</TABLE>


                                      F-5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Supplemental schedule of noncash financing activities:

In January 2002, the Company issued 33,840 units consisting of one share of
common stock and one warrant to purchase an additional share of common stock in
exchange for payment of accrued interest totaling $27,072.

In January 2002, the Company issued 614,183 units (consisting of one share of
common stock and one warrant to purchase an additional share of common stock)
for payment of $491,346 in deferred compensation. The warrants are exercisable
at $.80 per share through January 31, 2003; at $1.00 per share through January
31, 2004 and thereafter at $2.00 per share through January 31, 2007.

In January 2002, pursuant to the 20% promissory note agreements, the Company
converted $63,377 of accrued interest into additional principal.

In April 2002, pursuant to the 6%/12% promissory note agreements, the Company
converted $65,168 of accrued interest into additional principal.

In April 2002, pursuant to the debt restructuring, the Company recorded a
deferred financing charge of $329,572. This resulted in an increase to notes
payable of $140,203 and accrued interest of $189,369.

In July 2002, the Company issued 187,500 units consisting of one share of common
stock and one warrant to purchase an additional share of common stock to a
vendor in accordance with the agreement valued at $150,000 for payment of
accounts payable.

In August 2002, the Company issued 200,000 shares of common stock in exchange
for payment of $90,000 of accounts payable.

In September 2002, pursuant to the 6%/12% promissory note agreements, the
Company converted $41,512 of accrued interest into additional principal.

In January 2001, pursuant to the 20% promissory note agreements, the Company
converted $51,111 of accrued interest into additional principal.

In January 2001, the Company granted warrants to purchase 20,000 shares of
common stock (with an estimated fair value of $23,400) in connection with
$100,000 drawn from a $1,000,000 credit facility provided by a major existing
investor. This resulted in an initial increase to debt discount and to
additional paid-in capital.

In February 2001, the Company issued 27,641 shares of common stock in exchange
for payment of accrued interest totaling $36,279.

In February 2001, the Company issued 92,308 shares of common stock with a value
of $150,000 for services rendered.

In March 2001, pursuant to a $500,000 line of credit agreement, the Company
granted warrants to purchase 100,000 shares of common stock (with an estimated
fair value of $80,000). This resulted in an initial increase to debt discount
and in additional paid-in capital.


                                      F-6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)

In March 2001, the Company granted warrants to purchase 390,625 shares of common
stock with an estimated fair value of $324,418 for advertising services. This
amount was recorded in stockholders' deficiency as an increase to unearned
advertising and to additional paid-in capital.

In April 2001, pursuant to the 20% promissory note agreements, the Company
converted $53,472 of accrued interest into additional principal.


                                      F-7
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- ORGANIZATION

      Milestone Scientific Inc. (the "Company" or "Milestone") was incorporated
      in the State of Delaware in August 1989. Milestone has developed a
      proprietary, computer-controlled anesthetic delivery system, through the
      use of the Wand(R), a single use disposable handpiece. The system is
      marketed in dentistry under the trademark CompuDent(TM) and Wand Plus(R)
      and in medicine under the trademark CompuMed(TM). CompuDent(TM) is
      suitable for all dental procedures that requires local anesthetic.
      CompuMed(TM) and Wand Plus(R) are suitable for many medical procedures
      regularly performed in Plastic Surgery, Hair Restoration Surgery,
      Podiatry, Colorectal Surgery, Dermatology, Orthopedics and a number of
      other disciplines. The systems are sold in the United States and in over
      25 countries abroad. The Company's products are manufactured by
      third-party contract manufacturers.

Note B- Basis of Presentation:

      The accompanying consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. However, as
      shown in the accompanying consolidated financial statements, the Company
      incurred net losses of approximately $2,440,000 and $3,992,000 and
      negative cash flows from operating activities of approximately $676,000
      and $1,385,000 during 2002 and 2001, respectively. As a result, the
      Company had a cash balance of approximately $10,000, a working capital
      deficiency of approximately $5,214,000 and a stockholders' deficiency of
      approximately $6,106,000 as of December 31, 2002. These matters raise
      substantial doubt about the Company's ability to continue as a going
      concern.

      Management believes that, in the absence of a substantial increase in
      revenue, it is probable that the Company will continue to incur losses and
      negative cash flows from operating activities through at least December
      31, 2003 and that the Company will need to obtain additional equity or
      debt financing, as well as to continue its ability to defer its
      obligations, to sustain its operations until it can expand its customer
      base and achieve profitability.

      To date, the Company has taken certain steps in order to reduce its
      operating expenses and utilization of cash. These steps include, amongst
      others, the following:

      o     Commencing in 2001 and continuing through 2002, the Company
            reconfigured its sales force. The Company went from maintaining a
            large internal sales force to utilizing independent sales
            representatives and distributors.

      o     The Company reduced administrative personnel and telemarketers by
            approximately ten people.

      o     On January 31, 2003, the Company completed the closing of the
            Deerfield, IL facility. The customer support, service and other
            back-office functions previously conducted, in whole or in part, at
            this location were consolidated into the Company's New Jersey
            location. The receiving, shipping and storage functions, which were
            also previously done at this location, will be outsourced at an
            independent warehouse located in Pennsylvania. The closure of the
            Illinois facility will result in reductions in overhead and other
            costs, while improving operational efficiencies.

      o     Obtained an agreement from its Chief Executive Officer/Stockholder
            to defer 2002 and 2003 compensation, aggregating $640,000 until
            April 2004.

            o     Restructured and extended the maturity dates of its debt
                  obligations ( see Note H). Further, as part of the debt
                  restructuring, the Company obtained agreements from certain of
                  its note holders enabling it to convert debt and related
                  interest aggregating approximately $4,751,000 into shares of
                  common stock. It is the Company's intention to have this
                  conversion completed sometime during the third quarter 2003.


                                      F-8
<PAGE>

NOTE B (continued)

            o     Obtained an agreement from one of its attorneys to convert an
                  additional $160,000 of the amount owed into shares of common
                  stock.

In addition, during February 2003, the Company received a $200,000 note payable
from an existing investor. The note is convertible into shares of common stock,
at the Company's option, which it plans to do during the third quarter of 2003.
During April 2003, the Company received an additional $900,000 line of credit
from the same investor, which is scheduled to mature on January 1, 2005, unless
extended.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.


                                      F-9
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.    Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
      and of its wholly-owned subsidiaries and its majority-owned subsidiary,
      Spintech. All significant intercompany balances and transactions have been
      eliminated in consolidation.

2.    Cash and Cash Equivalents

      For purposes of the statements of cash flows, the Company considers all
      highly liquid investments purchased with a maturity of three months or
      less to be cash equivalents. At December 31, 2002 and 2001, the Company
      did not have any cash equivalents.

3.    Inventories

      Inventories principally consist of finished goods and component parts
      stated at the lower of cost (first-in, first-out method) or market.

4.    Equipment

      Equipment is recorded at cost, less accumulated depreciation. Depreciation
      expense is computed using the straight-line method over the estimated
      useful lives of the assets, which range from 3 to 7 years. The costs of
      maintenance and repairs are charged to operations as incurred.

5.    Debt Issue Cost and Debt Discount

      Debt issue costs are deferred and amortized to interest expense over the
      term of the related loan on a straight-line method, which approximates the
      interest method. Debt discounts are offset against the principal balance
      and amortized using the straight-line method over the term of the related
      loan.

6.    Impairment of Long-Lived Assets

      The Company reviews long-lived assets for impairment whenever
      circumstances and situations change such that there is an indication that
      the carrying amounts may not be recovered.

7.    Revenue Recognition

      Revenue is recognized when title passes at the time of shipment and
      collectibility is reasonably assured.

8.    Research and Development

      Research and development costs are expensed as incurred.

9.    Income Taxes

      The Company uses the liability method of accounting for income taxes, as
      set forth in SFAS No. 109, "Accounting for Income Taxes." Under this
      method, deferred income taxes, when required, are provided on the basis of
      the difference between the financial reporting and income tax bases of
      assets and liabilities at the statutory rates enacted for future periods.


                                      F-10
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C (concluded)

10.   Basic and diluted net loss per common share

      Basic and diluted net loss per share are computed using the
      weighted-average number of shares of common stock outstanding during the
      period. Potentially dilutive securities have been excluded from the
      computation of diluted earnings per share, as their effect is
      antidilutive. If the Company had reported net income, diluted earnings per
      share would have included the shares used in the computation of net loss
      per share plus common equivalent shares related to 4,844,355 and 3,325,832
      outstanding options and warrants for the years ended December 31, 2002 and
      2001, respectively and the payment of the notes payable with shares of
      comon stock.

11.   Use of Estimates

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions in determining the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and reported amounts
      of revenues and expenses during the reporting period. The most significant
      estimates relate to the allowance for doubtful accounts, advances to
      contract manufacturer, inventory valuation allowances, and valuation
      allowances on deferred tax assets. Actual results could differ from those
      estimates.

12.   Fair Value of Financial Instruments

      The carrying amounts reported in the consolidated balance sheet for cash,
      accounts receivable, accounts payable and accrued expenses approximate
      fair value based on the short-term maturity of these instruments. Notes
      payable to officer/stockholder and long-term notes payable approximate
      fair value due to the fact that the effective interest rates are
      comparable among the various noteholders.

13.   Accounting for Stock-Based Compensation

      The Company has adopted the disclosure provisions of Statements of
      Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
      Stock Based Compensation," and therefore applies the intrinsic value
      method of accounting for employee stock options as prescribed under
      Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
      Stock Issued to Employees." Under APB No. 25, when the exercise price of
      an employee stock option granted by the Company is equal to or greater
      than the market price of the underlying stock on the date of grant, no
      compensation expense is recognized.

14.   Concentration of Credit Risk

      The Company's financial instruments that are exposed to concentrations of
      credit risk consist primarily of cash and trade accounts receivable. The
      Company places its cash with high quality credit institutions. At times,
      such investments may be in excess of the Federal Deposit Insurance
      Corporation insurance limit. The Company has not experienced any losses in
      such accounts and believes it is not exposed to any significant credit
      risks. Financial instruments which potentially subject the Company to
      concentrations of credit risk consist principally of trade accounts
      receivable, as the Company does not require collateral or other securities
      to support customer receivables.

NOTE D -- INVENTORIES

Inventories consist of the following:

The Wand(R) units and handpieces                         $125,214
Component parts and other materials                       104,558
                                                         --------
                                                          229,772
Reserve                                                   110,481
                                                         --------
                                                         $119,291
                                                         ========


                                      F-11
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E -- ADVANCES TO CONTRACT MANFACTURER

      Advances to contract manufacturer represents deposits to the Company's
      contract manufacturer to fund future inventory commitments. The aggregate
      amount of the advances amounted to $387,935 of which approximately
      $300,000 is estimated to be used in 2003.

NOTE F --EQUIPMENT

Equipment consists of the following:

Furniture and fixtures                                 $ 194,656
Office equipment                                         148,797
Tooling equipment                                         64,079
Trade show displays                                       81,800
Computer servers and software                            125,341
                                                       ---------
                                                         614,673
Less accumulated depreciation                           (387,466)
                                                       ---------
                                                       $ 227,207
                                                       =========

NOTE G -- NOTES PAYABLE TO OFFICER/STOCKHOLDER

      Notes payable to officer/stockholder represent two obligations payable to
      the Company's Chief Executive Officer ("CEO"), consisting of (i) $200,000
      note payable, with interest payable at 9% per annum having an original due
      date of January 2, 2003 and (ii) a $100,000 line of credit with interest
      payable at 6% per annum having an original due date of April 2, 2003. On
      April 1, 2003, the notes were extended to April 1, 2004. Interest expense
      for the years ended December 31, 2002 and 2001 amounted to $19,701 and
      $18,250, respectively.

NOTE H -- NOTES PAYABLE

      Notes payable consist of the following:

       Short term

<TABLE>
<S>                                                                            <C>
            6%/12% Promissory notes, due on August 1, 2003 (A)                 $2,945,542

            8% Line of credit for $500,000,  originally due on August 31,
            2002, extended to August 1, 2003, net of debt discount
            of $7,024 (B)                                                         492,976

            8% Promissory notes payable, $500,000 originally due
            June 30, 2003, extended to August 1, 2003 and $685,000 due
            August 1, 2003, net of debt discount of $41,810 (C)                 1,143,190
                                                                               ----------
               Total                                                           $4,581,708
                                                                               ==========
</TABLE>

      Long Term (B)

            8% Promissory note payable for $500,000 originally due December 31,
            2003, extended to January 2, 2005, net of a debt discount of $19,909
            totaling $480,091.

(A) 6%/12% Promissory Notes

      The 6%/12% Promissory Notes consist of the following issuances:

      (i)   On March 16, 2001, the Company restructured its obligations to the
            holders of its 10% Senior Secured Promissory Notes. Under the terms
            of the agreement, each of the noteholders agreed to exchange their
            10% Notes for a new, zero coupon note (the "Zero Coupon Note").


                                      F-12
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (continued)

            As a result of the Company initially restructuring its obligations,
            the unamortized portion of the debt discount and deferred financing
            costs were amortized through March 31, 2002. The significant terms
            of the Restructuring Debt were (i) modification of the interest rate
            (ii) granting the company the option to pay the debt with shares of
            common stock and (iii) repricing the warrants which were previously
            issued to the shareholders back to the initial exercise price of
            $1.75 per share.

            Subsequently, on April 15, 2002, the holders additionally agreed to
            extend the promissory notes to July 1, 2003 and to lower the
            interest rate to 6% if paid in cash or to 12% if paid in common
            stock. In connection with the extension, the Company recorded
            $16,215 in deferred financing charges relating to professional fees
            and $140,203 of deferred financing costs relating to consideration
            to the noteholders valued at $120 per share of the Company's common
            stock for each $1,000 face amount outstanding at maturity which
            increased the aggregate carry value of the notes by $140,203. The
            Company is accruing interest expense at 12%. These deferred
            financing costs are being amortized through July 1, 2003.

      (ii)  In August 2000, the Company borrowed $1,000,000 which consists of
            two loans from two funds managed by Cumberland Associates LLC, and
            bear interest at 20% per year and payable in cash or through the
            issuance of additional 20% notes on which both interest and
            principal are payable. The loans are secured by substantially all
            assets of the Company and are subordinated to the 6%/12% senior
            secured promissory notes that were amended April 15, 2002. The
            Company can prepay the loans in cash at any time. The Company can
            prepay the notes and accrued interest with common stock at its
            option after March 31, 2001. Stock issued in lieu of payment of the
            debt will be valued at 85% of the then market price. For the year
            ended December 31, 2002, the Company converted $257,865 of accrued
            interest into principal. During 2001, the Company had previously
            converted $222,417 of accrued interest into principal. On April 12,
            2002, Cumberland Associates LLC agreed to extend the maturity date
            of these loans through July 1, 2003 and to lower the interest rate
            from 20% to 6%, if paid in cash, or 12% if paid in common stock. The
            Company recorded $16,215 of deferred financing charges relating to
            professional fees and $189,369 relating to consideration issued to
            the noteholders valued at $120 per share of the Company's common
            stock for each $1,000 face amount outstanding at maturity. The
            Company is currently accruing interest expense at 12%. Accordingly,
            the deferred financing costs and the unamortized financing charges
            are being amortized through July 1, 2003.

            It is currently the Company's intention to satisfy these obligations
            with shares of common stock upon their maturity.

(B)   8% Promissory Notes

      The 8% promissory notes consist of the following:

            On July 31, 2000, the Company established a $1,000,000 credit
            facility with a major existing investor. Initially, $500,000 was
            borrowed under the line, which was due on June 30, 2003. In December
            2000, and January 2001, the Company borrowed under the credit
            facility an additional $400,000 and $100,000, respectively, due on
            December 31, 2003. In connection with the initial $500,000, the
            investor received five-year warrants to purchase 70,000 shares of
            the Company's common stock, exercisable at $3.00 per share. In
            connection with the $400,000, the investor received five-year
            warrants to purchase 80,000 shares of the Company's common stock
            exercisable at $1.25 per share. In connection with the $100,000, the
            investor received five-year warrants to purchase 20,000 shares of
            the Company's common stock at $1.25 per share. On April 12, 2002,
            the investor agreed to extend the maturity date of the $500,000


                                      F-13
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (concluded)

      to August 1, 2003. At the option of the Company, this $500,000 can be
      convertible into common stock. Accordingly, in connection with the
      extension, the unamortized debt discount is being amortized to August 1,
      2003. On April 15, 2003, the investor agreed to extend the maturity date
      of the $500,000 and interest originally due December 31, 2003 to January
      2, 2005. Accordingly, only $500,000 of loans have been recorded as long
      term debt in the accompanying consolidated financial statements.

      (c)   During 2002, the Company issued a total of $1,185,000 promissory
            notes to an existing investor. The notes bear interest at 8% if paid
            in cash and 10% if paid in stock and mature on August 1, 2003. At
            the option of the Company, the principal and interest are payable on
            the maturity date in common stock. Additionally, the note will
            automatically convert into the Company's common stock if the Company
            issues 1,000,000 shares or raises at least $1,000,000 from the sale
            of equities prior to August 1, 2003, at the market price in that
            transaction but not less than $.50 per common share, or more than
            $2.00 per share. The Company is accruing interest at 10%.

NOTE I -- STOCK OPTION PLAN

      In 1997, the Board of Directors approved the adoption of the 1997 Stock
      Option Plan. The 1997 Stock Option Plan provides for the grant of options
      to purchase up to 500,000 shares of the Company's common stock. In 1999,
      the Plan was amended, providing for the grant of options to purchase up to
      1,000,000 shares of the Company's common stock. Options may be granted to
      employees, officers, directors and consultants of the Company for the
      purchase of common stock of the Company at a price not less than the fair
      market value of the common stock on the date of the grant. In general,
      options become exercisable over a three-year period from the grant date
      and expire five years after the date of grant.

      The Company has adopted the disclosure provisions of Statement of
      Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
      Stock-Based Compensation." SFAS No. 123 establishes financial accounting
      and reporting standards for stock-based employee compensation plans. The
      Company applies the intrinsic value method prescribed under Accounting
      Principles Board Opinion No. 25 and related interpretations in accounting
      for its stock-based compensation plans.

      If the Company had elected to recognize compensation expense based upon
      the fair value at the grant date, consistent with the methodology
      prescribed by SFAS No. 123, pro forma net loss and net loss per share to
      common stockholders for the years ended December 31, 2002 and 2001 would
      have increased to the following pro forma amounts:

                                        December 31,
                                        ------------
                                    2002              2001
                                -----------       -----------
Net loss as reported            $(2,440,197)      $(3,991,580)
                                ===========       ===========
Pro forma net loss              $(2,664,814)      $(4,484,067)
                                ===========       ===========
Loss per share as reported      $      (.20)      $      (.36)
                                ===========       ===========
Pro forma loss per share        $      (.21)      $      (.40)
                                ===========       ===========


                                      F-14
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I (continued)

      The weighted-average fair value of the individual options granted during
      2002 and 2001 was estimated as .22 and $1.79, respectively, on the date of
      grant. The fair value for 2002 and 2001 was determined using a
      Black-Scholes option-pricing model with the following assumptions:

                                                December 31,
                                                ------------
                                          2002              2001
                                         -------           -------
Volatility                                   71%             92.0%
Risk-free interest rate                     4.5%              5.7%
Expected life                            5 years           5 years

            Stock option activity during 2002 and 2001 is summarized below:

                                               Shares of          Weighted-
                                             common stock         average
                                             attributable         exercise
                                              to options      price of options
                                             ------------     ----------------
Options outstanding at January 1, 2001          929,110           $   5.11
Granted                                         140,000               2.32
Forfeited                                      (139,844)              3.02
                                               --------
Options outstanding at December 31, 2001        929,266               5.16
Granted                                         173,000                .79
Forfeited                                      (360,422)              4.99
                                               --------
Options outstanding at December 31, 2002        741,844           $   4.08
                                               ========           ========


                                      F-15
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I (concluded)

      The following table summarizes information concerning outstanding and
      exercisable options at December 31, 2002.

                                                   Remaining
                                    Number        Contractual         Number
       Exercises Prices           Outstanding     Life (Years)      Exercisable
       ----------------           -----------     ------------      -----------
            $  .5500                 50,000            4.0                  0
               .7500                 61,000            4.0             20,333
               .8750                 50,000            2.0                  0
              1.0000                 50,000            1.0                  0
              1.2000                 25,000            4.5                  0
              1.2500                  5,000            1.7              5,000
              1.2500                 10,000            4.8                  0
              1.5625                  5,000            0.7              5,000
              1.6100                 24,844            2.5             16,563
              1.8125                  7,000            2.1              4,666
              2.0000                 50,000            3.0                  0
              2.1875                 81,000            2.5             54,000
              2.5000                100,000            1.8            100,000
              2.5000                 80,000            3.6             26,667
              3.0000                 29,000            1.0             29,000
              3.0000                  4,500            1.5              4,500
              4.0000                  1,500            1.5              1,500
              5.0000                  1,500            1.5              1,500
              6.0000                  1,500            1.5              1,500
             16.0000                 50,000            0.0                  0
             16.5000                 25,000            0.3             25,000
             23.0000                 30,000            0.2             30,000
                                  ---------                         ---------
                                    741,844                           325,229
                                  =========                         =========

      The weighted-average exercise price of options exercisable at December 31,
      2002 is $5.30.

      The Company charged $10,000 to operations during the year ended December
      31, 2002, representing the fair market value of 150,000 stock options
      issued to a customer. Furthermore, the Company charged $197,649 to
      operations during the year ended December 31, 2001, representing the fair
      market value of 330,000 common stock purchase warrants issued to
      consultants.


                                      F-16
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J -- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION

      In January 1998, the Company entered into a five-year employment contract
      with its CEO providing for an annual base compensation of up to $350,000,
      plus stock options and cash bonuses based upon attaining certain earnings
      levels, which the Company has not yet achieved.

      In July 1998, the CEO agreed to a voluntary reduction of his annual base
      salary from $350,000 to approximately $188,000 that remained in effect
      through August 2000. At that time, the CEO agreed to defer his annual
      salary on a discretionary basis. Accordingly, the Company has recorded
      deferred compensation payable to the CEO in the amount of $491,346 at
      December 31, 2001.

      In January 2002, in consideration for payment of the deferred
      compensation, the Company issued 625,000 units. Each unit consisted of one
      share of the Company's common stock and one warrant to purchase an
      additional share of common stock. The warrants are exercisable at $.80 per
      share through January 31, 2003 and then at $1.00 per share through January
      31, 2004 and thereafter at $2.00 per share through January 31, 2007.
      Furthermore, on April 1, 2003, the CEO has agreed to defer payment on
      $640,000 of additional compensation relating to his salary for 2002 and
      2003 until January 2, 2005.

NOTE K -- SALES OF PROPHY ANGLES AND RELATED CONSULTING INCOME

      In November 2001, the Company sold certain tangible and intangible assets,
      rights and properties (which were fully amortized) relating to the
      SplatrFree(TM) prophy angle to Smart Health, Inc. for $55,000. In
      addition, the Company entered into a 12 month consulting agreement with
      Smart Health for $96,000. The Company recorded consulting income of
      $80,000 for the year ended December 31, 2002.

NOTE L -- INCOME TAXES

      Deferred tax attributes resulting from differences between financial
      accounting amounts and tax bases of assets and liabilities at December 31,
      2002 and 2001 are as follows:

Current assets and liabilities                            2002             2001
                                                  ------------     ------------
   Allowance for doubtful accounts                $     18,000     $     22,000
   Inventory allowance                                  44,000           60,000
   Warrants issued to consultants                           --               --
   Other                                                    --               --
Valuation allowance                                    (62,000)         (82,000)
                                                  ------------     ------------
Current deferred tax asset                        $         --     $         --
                                                  ============     ============
Non-current assets and liabilities
   Depreciation                                   $    (60,000)    $   (540,000)
   Asset impairment charge                                  --               --
   Net operating loss carryforward                  14,000,000       13,600,000
   Warrants and options issued to consultants          598,000          423,000
   Accrued interest                                    347,000          177,000
   Deferred compensation                               128,000               --
                                                  ------------     ------------
                                                    15,013,000       13,660,000
Valuation allowance                                (15,013,000)     (13,660,000)
                                                  ------------     ------------
Non-current deferred tax asset (liability)        $         --     $         --
                                                  ============     ============


                                      F-17
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L (continued)

      For the years ended December 31, 2002 and 2001 the valuation allowance
      increased by $1,353,000 and $2,038,000 respectively.

      As of December 31, 2002, the Company has Federal and State net operating
      loss carryforwards of approximately $36,000,000 that will be available to
      offset future taxable income, if any through December 2022. The
      utilization of the Company's net operating losses may be subject to a
      substantial limitation due to the "change of ownership provisions" under
      Section 382 of the Internal Revenue Code and similar state provisions.
      Such limitation may result in the expiration of the net operating loss
      carryforwards before their utilization. The Company has established a 100%
      valuation allowance to reserve for all of its net deferred tax assets due
      to the significant uncertainty that their benefit will be realized in the
      future.

NOTE M -- PRODUCT SALES AND SIGNIFICANT CUSTOMERS

      The Company's sales by product and by geographical region are as follows:

                                                             December 31,
                                                             ------------
                                                         2002            2001
                                                      ----------      ----------
The Wand(R) system kits                               $1,452,005      $1,828,801
The Wand(R) handpieces                                 2,402,396       1,948,769
Prophy angles                                                 --          71,592
Dental needles                                           181,236         168,169
Other                                                     38,369          76,379
                                                      ----------      ----------
                                                      $4,074,006      $4,093,710
                                                      ==========      ==========

Dental division                                       $3,892,069      $4,093,710
Medical division                                         181,937              --
                                                      ----------      ----------
                                                      $4,074,006      $4,093,710
                                                      ==========      ==========

United States                                         $3,174,930      $3,354,302
Canada                                                   215,722         173,729
Other foreign countries                                  683,354         565,679
                                                      ----------      ----------
                                                      $4,074,006      $4,093,710
                                                      ==========      ==========

      During the years ended December 31, 2002 and 2001, the Company had sales
      to one customer (a worldwide distributor of the Company's products based
      in South Africa) of approximately $566,000 and $410,000, respectively.
      This represented 14% and 10% the total net sales for 2002 and 2001,
      respectively. Accounts receivable from this customer amounted to
      approximately $157,000, representing 65% of net accounts receivable at
      December 31, 2002.


                                      F-18
<PAGE>

NOTE N -- COMMITMENTS AND CONTINGENCIES

      Lease Commitments

      The Company leases office space and warehouse facilities under
      noncancelable operating leases. These leases also provide for escalations
      of the Company's share of utilities and operating expenses, which expire
      through 2007.

      Aggregate minimum rental commitments under noncancelable operating leases
      are as follows:

Year Ending December 31,
------------------------
        2003                         $123,000
        2004                          104,000
        2005                           72,000
        2006                           66,000
        2007                           21,000
                                     --------
                                     $386,000
                                     ========

      For the years ended December 31, 2002 and 2001, rent expense amounted to
      approximately $108,000 and $103,000 respectively.

      Contract Manufacturing Agreement

      The Company has informal arrangements for the manufacture of The Wand(R)
      unit and system kit with Tricor Systems, Inc. ("Tricor") and for the
      manufacture of The Wand(R) disposable handpiece by Nypro Inc.

      The termination of the manufacturing relationship with any of the above
      manufacturers could have a material adverse effect on the Company's
      ability to produce and sell its products. Although alternate sources of
      supply exist and new manufacturing relationships could be established, the
      Company would need to recover its existing tools or have new tools
      produced. Establishment of new manufacturing relationships could involve
      significant expense and delay. Any curtailment or interruption of the
      supply, whether or not as a result of termination of such a relationship,
      would adversely affect the Company.

      Contingencies

      In March 2001, the Company entered into an advertising agreement with News
      USA, Inc. and Vested Media Partners, Inc. (the "Agreement") to increase
      the awareness of healthcare professionals and the public to the benefits
      of The Wand(R) and the CompuFlo(TM) technologies.

      Under the Agreement, News USA is required to prepare articles and
      advertisements for the Company's products and technologies and place them
      in newspapers and on radio stations.

      News USA had guaranteed 72,000 media placements during the 18-month term
      of the Agreement. In exchange for these services, the Company granted
      warrants to purchase 1,171,875 shares of common stock exercisable on the
      following dates and prices over the life of the Agreement: (1) $1.28
      during the first 18 months, (2) $2.25 during the next year and (3) $3.00
      during the next year.

      The Agreement provided for a termination clause in the fourth month if the
      Company's average closing stock price does not exceed $2.25 during the
      first ten days of the fourth month provided that the Company has received
      24,000 publications. Accordingly, the remaining two-thirds of the warrants
      to purchase the Company's common stock would not become exercisable.
      However, the vendor can recommence producing the publications whenever the
      Company's average closing stock price for a ten day period exceeds $2.25.
      At the end of the ninth month, the vendors have the option to terminate
      the Agreement if the Company's stock price has not averaged $2.25 for a
      ten day period.


                                      F-19
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N (continued)

      Upon termination, two-thirds of the warrants remaining to purchase the
      Company's common stock will be forfeited unless the vendors resume
      fulfilling one-half of their obligation in three months and the remaining
      obligation in the next six months.

      In March 2001, the Company initially recorded unearned advertising cost of
      $324,218 which represents the estimated fair value of the 390,625 of the
      warrants for one-third of the total warrants granted based on the 24,000
      minimum placements. The unearned advertising cost is being amortized as
      publications are received by the Company over the minimum placements. As
      of December 31, 2002, unearned advertising cost was $278,017 and during
      the year ended December 31, 2002, the Company recorded $24,803 in
      advertising expenses relating to placements during the year. The estimated
      fair value of the remaining warrants to purchase 781,250 of the Company's
      common stock have not been recorded in the Company's consolidated
      financial statements due to the likelihood that the Agreement will not be
      fulfilled.

      As of December 31, 2002, News USA did not meet the guaranteed media
      placements and accordingly the unearned advertising cost of $278,017 was
      reversed.

NOTE O -- RELATED PARTY TRANSACTIONS

      The Company paid $137,500 and $72,500 during the years ended December 31,
      2002 and December 31, 2001, respectively, to a law firm where one of the
      partners was previously on the Company's Board of Directors. At December
      31, 2002 and 2001, the Company had accounts payable to the law firm of
      $389,181 and $302,866, respectively. On March 29, 2002, the Company
      entered into an agreement with the law firm deferring $272,866 of the
      accounts payable to January 2, 2003. The law firm and the former Director
      also participated in the February 2001 private placement, each purchasing
      $50,000 of 10% Senior Secured Promissory Notes and warrants to purchase
      7,143 shares of the Company's Common Stock. The notes were extended to
      July 1, 2003.

      For the years ended December 31, 2002 and 2001, the Company paid $19,049
      and $20,850 to the wife of Milestone's CEO. She was employed by Milestone
      to render professional services. At December 31, 2002, the Company had
      accounts payable totaling $32,000 to the Company's CEO and his wife.

NOTE P -- STOCKHOLDERS' DEFICIENCY

      In January 2001, Milestone entered into a three-year private equity line
      agreement with Hillgreen Investments Limited ("Hillgreen"), a British
      Virgin Islands corporation, pursuant to which Hillgreen is obligated to
      purchase, subject to the fulfillment of specified conditions, up to
      2,100,000 shares of Milestone common stock over the next 36 months.
      Hillgreen has allocated $20,000,000 to fund its purchase obligations. The
      transaction was arranged by Jesup & Lamont Securities Corporation, a New
      York based investment banking firm. Milestone's right to draw upon this
      facility is subject to a number of limitations and conditions, including a
      limitation on the amounts sold to Hillgreen within specified periods.
      Subject to these and other conditions and limitations, Milestone will have
      full control over the timing of any financing under the equity line and is
      under no obligation to sell any shares to Hillgreen. Any shares that are
      sold will be priced at 87.5% of the volume weighted average market price
      of Milestone common stock during a fixed period prior to the sale.
      Milestone has discretion to establish a floor price below which shares
      will not be sold by Milestone to Hillgreen. At April 11, 2003, without any
      restrictions and based on the closing stock price, the maximum proceeds
      that the Company could receive would be approximately $478,000.

      In August 2002, the Company issued 200,000 shares of common stock in
      exchange for payment of $90,000 of outstanding legal fees.


                                      F-20
<PAGE>

                 MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q -- SUBSEQUENT EVENTS

      On January 17, 2003, the Company's CEO provided the Company with a $57,322
      short term loan for the express purpose of purchasing Wand(R) handpieces
      from the Company's supplier. The Company repaid the loan in full by
      February 7, 2003. On February 12, 2003, the CEO provided the Company with
      a $38,215 loan for the same purposes as above. The loan is payable on
      demand and $33,215 remains outstanding as of March 31, 2003.

      On February 13, 2003, the Company received $200,000 from an existing
      investor that matures on August 1, 2003. At the option of the Company,
      the note and interest can be paid in common stock.

      On April 7, 2003, the CEO provided the Company with an additional $35,000
      to use for the express purpose of contributing towards the Company's
      increased insurance premium.


                                      F-21